Corporate governance stock option backdating twilight movie dating

Given the Delaware Court of Chancery's prominence in adjudicating disputes relating to companies incorporated in the State of Delaware, it comes as no surprise that several decisions from that Court provide some insight into how claims alleging breach of fiduciary duty based on backdating of stock options may be viewed.

In fact, touting its public policy interest in deciding the law on the stock option backdating issue, the Court of Chancery recently displayed its reluctance to relinquish its authority to decide such claims and refused to stay a derivative action challenging purported stock option backdating practices.

This holds true even if the directors possessed a reasonable basis on which to grant such awards.

corporate governance stock option backdating-45corporate governance stock option backdating-5corporate governance stock option backdating-69

Remarkably, the number of internal or federal investigations currently underway tops 200, with more than half of those companies acknowledging that they must restate their financial results.

In addition to those ongoing investigations, a new crop of derivative and class action complaints has sprung up asserting allegations of breaches of fiduciary duty by directors and officers of companies involved in the backdating scandals.

Spawned by the research conducted by University of Iowa professor, Dr.

Erik Lie, and the article that first appeared in The Wall Street Journal in March of 2006, stock option backdating has become an increasingly important issue for all public companies.

What Are The Terms Of Any Stockholder-Approved Stock Option Plan?

A primary focus in adjudicating the validity of stock option backdating includes the mechanism by which directors have authority to grant various stock options.Whether or not stock option practices consistent with this type of low-risk plan evade examination depends largely upon the disclosures made in public filings and, thereby, to the company's stockholders.Since it appears that most stock option backdating took place under the cover of darkness, a company's failure to adequately inform its own stockholders about its stock option practices inevitably negates the protections afforded by a stock option plan that permits below-market-value pricing for stock options.But what factors are the courts considering when evaluating these derivative and class action complaints?Specifically, what behavior on the part of board members seemingly makes a difference?Equally important is determining whether or not the backdated stock options are subject to any vesting period.

Tags: , ,