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So Many Millions, So Little Body Armor
By Ben Stein
New York Times
Sunday, January 7, 2007


The current state of corporate ethics, and the governmental and public policy response to that state, are so bewildering, so upsetting, so impossible to understand except in terms of the famous phrase, ďFollow the money,Ē that it makes my poor old head spin.

Start with Steven P. Jobs.  This worthy gentleman is one of the most successful entrepreneurs in history.  Avatar of Apple, potentate of Pixar, recalled to be the savior of Apple, he is a genius at technology and finance.  Heís been well rewarded for it, with a fortune in the hundreds of millions, if not billions.

Apparently that was not quite enough.  Recent reporting tells that in the period from about 1998 to about 2002, Mr. Jobs helped to choose the dates for some stock option grants in the form of backdating.

Thatís where you ó if youíre a big wheel at a corporation ó get to choose the date and price of the options after you have seen when the yearly low was and seen how much recipients could make starting the options from times earlier on the calendar than the dates when the awards were actually awarded.  Itís sort of like getting to pick lottery numbers after the winning numbers are drawn ó and your stockholders supply the prize money.

Not only did Mr. Jobs benefit after his company did that with millions of stock options for his own self, but company records showed that the board (of which he is a member, of course) ratified that grant at a special meeting in October 2001.  The problem is, an internal investigation has now concluded that there was no such meeting on that date.  It simply never happened.  It was totally made up.

That is, the options were awarded in a highly unethical way and then condoned ó if I may use that term ó in a way that would make John Dillinger blush.

Wait.  It gets much better.  After all of this happened, a special subcommittee of the Apple directors was convened, led by that pillar of rectitude who is trying to save us from the evil oil companies and coal miners, none other than the founder of the Internet himself, Al Gore, and by a colleague who is another bedrock of rectitude, Jerome B. York, late of trying to save General Motors for the benefit of Kirk Kerkorian.

The special committee found that despite the fact that the date of Mr. Jobsís stock options was chosen ex post facto, that it was ratified by that made-up meeting, and that he later traded in those options, and some others, for five million shares of restricted stock (then worth more than $70 million), he was innocent of any wrongdoing and the board still had full confidence in him.  Yes.  I am not making this up.

Now there is an investigation into backdating of options at Pixar, the animation studio, when Mr. Jobs was running it, although the evidence so far is that the backdating did not help him directly.  Weíll see.  It pays to have some skepticism in these matters.

So now add Apple and Pixar to about 130 other large companies where backdating ó which is wildly unethical self-dealing, with powerful tax and accounting issues and possible criminal implications ó has been found.  And note that in all the main cases, backdating was not found until much later by some very smart academic sleuths and gifted newspaper reporters.

And now letís look at the Committee on Capital Markets Regulation, aka the Paulson committee.  Itís the group of academic and finance worthies that was sponsored informally by Treasury Secretary Henry M. Paulson Jr. and studied the harsh burdens under which the corporate pooh-bahs and Wall Street chieftains labored.

Recently, that group, along with many others of the hired intelligentsia of the management class, came out with their report that said that the Sarbanes-Oxley law was too strict on corporate America, and was hurting Wall Street by making companies register and do their initial public stock offerings in Europe.  (Quelle horreur!)

In particular, Sarbanes-Oxley was supposedly too strict in requiring audits of internal controls.  This was supposedly a painful, unnecessary burden in a world where a corporate bossís word is his bond and the word of any corporate boss is worth more than all the bonds in Christendom.  And the Sarbanes-Oxley section on internal controls was supposedly cruelly tormenting Wall Street to the detriment of the whole world of decent people.

But hold on.  Isnít backdating precisely an example of a failure of internal controls?  Havenít we just found out that internal controls are far too lax, not too strict?  For the Paulson committee to say that we need less stringency in corporate audits is a bit like the War Department saying we needed less watchfulness at our naval bases after Dec. 7, 1941.  Itís also a bit like Willie Sutton saying it would be good as a matter of national financial policy to have fewer guards at banks.

The amazing thing is that intelligent people are taking it seriously, this matter of rolling back corporate controls to make life even easier for misbehaving corporate wheeler-dealer types.  Whatís more amazing is that anyone is even thinking of rolling back corporate controls to make life richer for Wall Street.

The Street just finished paying out tens of billions in bonuses ó even as the Army and Marines are so starved for money that untrained soldiers are sent to Iraq because there is not enough equipment to properly train them first.

There is an acute shortage of Ferraris because of those bonuses, and there is a long waiting list for LŁrssen yachts.  But somehow, we are supposed to feel bad for Wall Street and for the class that has wrought so much mischief at the corporate helm, most recently with backdating.

But no committees of powerful corporate leaders and academicians are at work computing the moral and mortal costs of starving the Army and Marines of the equipment and training they need to do their jobs with minimal loss of life.  What a world ó where smart people worry about helping those suffering from a shortage of Ferraris, but hardly anyone outside the Pentagon notices the shortage of lifesaving equipment for the soldiers fighting our wars.

Where is the outcry?  Where is the rage?  Itís not a partisan thing.  The Democrats are just as complaisant about this as the Republicans.  Have the leaders of both parties and the boys at the research groups been so thoroughly blinded ó or corrupted ó by the plutocrats that no one will say ďbooĒ about it?

I guess so.  My letters tell me that there are a lot of angry people out there, and some of them have children in Iraq and wonder why all this looting is allowed while their sons and daughters are at war for a law-abiding and just America.

Iím no longer sure what to tell them, except that itís all about money, and if you donít get it, you donít get it.  And itís deeply sad.

Ben Stein is a lawyer, writer, actor and economist. E-mail: ebiz@nytimes.com.

http://www.nytimes.com/2007/01/07/business/yourmoney/07every.html?ref=busines