Posts filed under “Corporate Management”
I’m still digging out from what I missed while on vacation, but this obscure speech from SEC Commissioner Paul Atkins last week could not go unreported on. Jesse Eisinger rightly calls out this absurdity by a man who’s job is ostensibly protecting investors:
"SEC Commissioner Paul Atkins gave a bizarre speech yesterday, defending the practice of "spring-loading" stock options, or issuing options ahead of good news.
At a corporate governance forum in Washington, Mr. Atkins said, "It is cheaper to pay a person with well-timed options than with cash," adding that spring-loading is OK because no one is harmed. "It benefits shareholders because fewer stock options are granted."
Yeah? Doesn’t he have to provide some evidence for this contention? Is there one real-life example where insiders were granted fewer options than they otherwise would have been because they knew the stock price would rise quickly afterwards?
The absurdity of his argument is exposed by the fact that companies have not made clear and timely disclosure of their spring-loaded grants. If there is no problem with spring-loading, then what were they hiding?
Damon Silvers, associate general counsel at the American Federation of Labor and Congress of Industrial Organizations in Washington, whose members hold more than $400 billion of union-sponsored pension funds, had a devastating rebuttal, as quoted in a Bloomberg article yesterday: "It’s also true that if you let your employees steal from the cash register, you don’t have to pay them that much."
It has long been a fringe, extremist, free-marketer view that insider trading should be legal, and Atkins seems to be parroting it. Is this who investors really want as an SEC commissioner?
You can learn more about Commissioner Paul S. Atkins at the SEC site.
Nice to know the men in charge of regulating the Securities industry are hacks or fools — neither an appetizing choice.
UPDATE: July 11, 2006 4:00pm
Jeff Matthews is similarly incensed: SEC COMMISH TO BIGS: “HELP YOURSELF
"But before we get into cases, let’s stop calling them “spring-loaded” option
grants, because that makes it sound as if the economic payoff for the insiders
is simply a bit more leveraged to a rise in the stock price than the payoff for
other shareholders when the company announces the expected good news.
what has happened is the insiders have given themselves a larger slice of the
shareholder’s pie when they know the value of that pie is about to increase. So
let’s call them “front-running” option grants, because that is exactly what they
On its face, the ability of management to grant themselves
front-running option grants violates the very SEC regulations Mr. Atkins has
been sworn to enforce. After all, Reg FD requires an even playing field for
investors: no tips to Wall Street’s Finest; no wink-wink, nudge-nudge to Fido;
no nothing to the big hedge funds prior to disclosure of market-moving news,
good or bad."
And the WSJ continues its recent habit of burying killer columns on Saturday: Can Companies Issue, Options, Then Good News?
July 7, 2006 3:16 p.m.
Can Companies Issue Options, Then Good News?
SEC Is Divided on Practice Known as ‘Spring Loading;’ Critics See ‘Insider Trading’
KARA SCANNELL, CHARLES FORELLE and JAMES BANDLER
July 8, 2006; Page A1
File this one under “you’ve got to be kidding me.” > Some people are all excited that Dell Chairman Michael Dell, (who presumably knows his business better than anyone else), finally bought some shares recently. Specifically, Dell bought $70 million worth of stock at $23.99. Remarkably, this was Michael Dell’s first ever purchase of his…Read More
I frequently discuss Microsoft, and for many many reasons: They are a tech bellwether, a huge part of the S&P and Nasdaq 100 (and a smaller part of the Dow). They have also been a thorn in the side of new technology development and innovation, but now that so much of it has moved to the web, its gotten away from them.
This is a good thing.
One of the commenters said some time ago that I was "irrational in my hatred for Microsoft." That’s hardly the case; Microsoft has put a lot of cash in my pocket, so at worst, I should be grateful to them for the windfall.
However, I am still an objective observer, and I believe that Mister Softee is not what most investors think it is: They are hardly innovators; rather, they copy other people’s work relentlessly, until by default they own the standard. Their products are kludgy, bloated and anti-instinctive; They are hardly the elegant, easy to use software first dreampt up by science fiction writers decades ago.
From an investing standpoint, their fastest growth days are behind
them, yet they are hardly a value stock — yet. (Cody and I have disagreed about this for some time). The leaders of the last bull Market are rarely the leaders of the next. Despite this, Wall Street still loves
them, with 28 of
are widely owned by active mutual fund managers and closet Indexers.
Many people think of them as this well run money machine; In reality, they are very poorly managed by a group of techno-nerds with very little in the way of management skills. Even their vaunted money making abilities are profoundly misunderstood: Its primarily their monopolies in Operating Systems (Windows) and Productivity Software (Office) that generates the vast majority of their revenue and profits. Their Server software and SQL Database make money, but hardly the big bucks of Windows or Office. MSN is a loser, MSNBC is a dud, their Windows CE is hardly a barn burner — even X-Box has cost them billions more than it is likely to generate in profits over the next 5 years.
Lest you think its just me who thinks this way, consider no less an authority than Robert X. Cringely. He is the author of the best-selling book Accidental Empires (How the Boys of Silicon Valley Make Their Millions, Battle Foreign Competition, and Still Can’t Get a Date). He has starred in several PBS specials, including Triumph of the Nerds: A history of the PC industry.
After Gates resignation, Cringely wrote this:
"Microsoft is in crisis, and crises sometimes demand bold action. The company is demoralized, and most assuredly HAS seen its best days in terms of market
dominance. In short, being Microsoft isn’t fun anymore, which probably means that being Bill Gates isn’t fun anymore, either. But that, alone, is not reason enough for Gates to leave. Whether he instigated the change or someone else did, Gates had no choice but to take this action to support the value of his own Microsoft shares.
Let me explain through an illustration. Here’s how Jeff Angus described Microsoft in an earlier age in his brilliant business book, Managing by Baseball:
"When I worked for a few years at Microsoft Corporation in the early ’80s, the company had no decision-making rules whatsoever. Almost none of its managers had management training, and few had even a shred of management aptitude. When it came to what looked like less important decisions, most just guessed. When it came to the more important ones, they typically tried to model their choices on powerful people above them in the hierarchy. Almost nothing operational was written down…The tragedy wasn’t that so many poor decisions got made — as a functional monopoly, Microsoft had the cash flow to insulate itself from the most severe consequences — but that no one cared to track and codify past failures as a way to help managers create guidelines of paths to follow and avoid."
Fine, you say, but that was Microsoft more than 20 years ago. How about today?
Nothing has changed except that the company is 10 times bigger, which means it is 10 times more screwed-up.