Options backdating cases
But what factors are the courts considering when evaluating these derivative and class action complaints?
Specifically, what behavior on the part of board members seemingly makes a difference?
The Dating Game, by James Surowiechi, The New Yorker: ..
When news broke, earlier this year, that some companies had backdated stock-option grants ...
With the discovery of stock option backdating, directors and stockholders are not necessarily on the same footing since the backdating of options bestows upon those receiving them "in the money" grants.
Backdating allowed companies to reward employees with in-the-money options while getting the favorable accounting treatment of at-the-money options. Classifying the options properly would have lowered the number in the “earnings” box, and so C. O.s assumed that it would also drag down the company’s stock price.The granting of stock options to executives and directors began as a method by which a company could award those that managed its future.This concept created more of a level playing field between directors and stockholders since, with the granting of stock options, both directors and stockholders were working toward the same end - namely, overall success of the company.Obviously, to the extent a formalized stock option plan exists, its very terms will be the subject of much scrutiny, particularly where the plans were subject to stockholder approval.For example, in those instances where stockholders have approved plans outlining the procedures for the issuance of stock options, those procedures should be followed in order to avoid even the slightest appearance of corporate impropriety.