'No personal gain' defense for backdating is senseless spin

The first of the stock-options trials is over, and Gregory Reyes, former CEO of Brocade Communications Systems, has been convicted of securities fraud in federal court.

The first of the stock-options trials is over, and Gregory Reyes, former CEO of Brocade Communications Systems, has been convicted of securities fraud in federal court.

I'm sorry for his family, but this verdict is good news for corporate governance, for the rule of law, and maybe even for truth-telling by corporate spinners.

The positive effect on PR would occur if people stop employing some of the insulting spin that Reyes' defenders offered for his actions - and that is part of the alibi of choice in so many other cases of stock-options backdating. This twisting of reality has been notably common in cases involving technology companies, where the practice was especially widespread.

The specific words vary from company to company, but they generally boil down to this: "He wasn't doing this for personal gain."

I offer a word to sum up the correct response to this notion. Here's half of that word: bull.

Let's leave aside for the moment the fact that the backdating was flagrant dishonesty when not disclosed to shareholders (and that was the norm). Companies have had to restate billions of dollars in lower earnings to account for their lies.

Now, it's fair to note that some executives whose companies participated in the backdating did not personally have any of their own options backdated. The reason for the backdating, they usually argue, was to recruit and reward employees, and thereby make the company better, which is good for shareholders.

Huh? This completely belies the "we didn't personally benefit" implication the executives and their expert PR folks want to convey.

One reason it's bogus is the implication that executives' interests are independent from what their employees do. If backdating options - a procedure that would be legal, if still somewhat sleazy, if disclosed at the time - was beneficial for the company, it was by definition beneficial for the executives.

"Much of CEOs' bonus pay is tied to reported earnings," noted Jesse Fried, a law professor at the University of California, Berkeley, in a recent Op-Ed column in the San Jose Mercury News. "So is the price at which executives can unload their stock. The firm-wide back-dating of options jacked up earnings, and the amounts involved were not trivial." (The Reyes case was especially ugly, as Fried explained, because according to a civil lawsuit filed against Reyes by the government, Reyes did receive some of the backdated options.)

This has been true since the backdating scandal broke. Why, then, are journalists still being stenographers for the spinners who recite the "didn't personally benefit" mantra, as if it was the other side of an issue that has two legitimate points of view?

Perhaps the topic is too arcane. But perhaps it's just journalistic laziness.

But what's so hard to understand about the idea that if it's good for your employees, and if your pay depends on their work, you're going to win, too? That isn't rocket science. It's basic logic. Journalists shouldn't let executives and their spinners get away flouting it.

Dan Gillmor is the author of We the Media: Grassroots Journalism By the People, For the People. He's also director of the Center for Citizen Media (www.citmedia.org).

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