So, one of the two Wall Street Journal Pulitzer Prizes this year is for the WSJ’s reporting on the backdating of options scandal that has snared hundreds of companies and executives over the past year. Frankly, I’ve been more impressed with the WSJ’s Holman Jenkins’ writing ($) exposing how the media largely made a mountain out of a molehill in regard to the backdating mess (John Carney over at DealBreaker comments along the same line).
So, my question is this — if the WSJ backdating series merits a Pulitzer, then what award does the even more insightful series of blog posts that developed the Apple Rule deserve?
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Tom can you point me for a couple of good source articles on why criminal law is a poor tool for these kinds of agency problems? And/or what alternatives are available? I often see the sentiment voiced, but I’d like to see some of the arguments behind the opinion.
Is the thesis that criminal law is never appropriate? For example, backdating doesn’t appear to involve a lot of nuance. Either you did or you didn’t. Obviously there may be some question as to who knew about it and what their intent was, but these questions are always left to criminal juries. Is the idea that theft from shareholders isn’t like other theft? Or that other tools are more suited to deterring and monitoring such “agency costs.” Or perhaps backdating is simply another compensation tool that should be left to the discretion of officers/directors. I’m skeptical, but curious.
I agree that most complex corporate scandals aren’t easy for juries to parse, and that Enron is probably a good example of emotion trumping evidence. But are these bad facts or evidence of a systemic failure? Given that civil remedies don’t seem to work very well either, I’m just interested in what might work. Or should we just say “so it goes” when we hit these major scandals and not get so worked up about trying to minimize their frequency and scope. Perhaps the frequency and scope are indeed molehills rather than mountains.
Bottom line: there are situations of gross theft from shareholders. When you find it, how do you punish it? Should we simply not bother with it because finding tidy answers may be too complex or nebulous a process?
Believe me, I know less than you do about it. I’d like to know more. Thanks.