| The new corporate scandal |
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Jon
Preferred Member
Cash: $ 50.02
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Joined: 13 Apr 2005
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| The new corporate scandal |
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There is another reason we briefly touched Monday night, and that is the new corporate scandal related to backdating option grants. These are the options that are paid as part of the executive compensation. Most people think of technology companies when you talk about this given all of the uproar in techland over proposed requirements to expense such options. They are much more widespread than that with nearly all corporations giving executives restricted stock or stock options. GE, CAT, many oil companies; you name the sector and you can find most of the players compensating executives with options.
Nonetheless, much of the focus has been on NASDAQ stocks because this is where the problems are being uncovered. The latest casualty was KLAC, and with the disclosure that a probe was underway the stock fell over $6 the past two sessions (13%). It is a SOX component so it is no wonder SOX took the low road the past two sessions. Other tech stocks are under scrutiny, and thus it is no surprise NASDAQ is showing weakness as many fear this is just the tip of the iceberg. It is not particularly surprising that NASDAQ started to struggle with the MSFT earnings and the contemporaneous early reports of the options problem. Very similar to the tech swoon after the Justice Department brought its anti-trust lawsuit against MSFT before the 2000 crash.
The real fear behind this is not necessarily the damage done from another scandal, but the typical congressional response: more regulation versus enforcing existing laws and simply prosecuting the wrongdoers with haste. Sarbanes-Oxley remains one of the major drags on the US economy as small publicly traded businesses struggle with the costs, other small businesses decide not to go public, and companies from other countries decide not to list on a US exchange. This is a major drain on smaller business, and it has a chilling effect on our ability to compete internationally. If fewer companies decide to turn public and tap into those funds to further their growth, we don’t get the same strong innovation we enjoyed pre-Sar-Ox.
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Thu May 25, 2006 2:24 am |
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