US - The US$204bn California Public Employees' Retirement System (CalPERS) has called on 25 companies to respond to allegations of stock option backdating practices for top executives.
The practice allows executives to backdate stock purchase options to secure the lowest possible market price, thus maximising potential profits regardless of performance, and CalPERS has asked the companies to independently investigate reports of employee stock option backdating and disclose all findings publicly.
CalPERS global equity senior investment officer Christianna Wood said the allegations raised concerns about a lack of oversight by the board of directors, weak internal controls, weak internal and external audit practices, and poor accounting and the possibility of civil and criminal penalties against these companies. CalPERS CIO Russell Read said the fund had also requested development and public disclosure in financial and proxy statements of any new board of directors’ policies for determining option grant dates.
Stock option backdating potentially threatens the credibility, governance and performance of companies...and it imperils the creation and sustainability of long-term value for shareowners, said Read.
CalPERS asked the companies to adopt strong audit policies with board-approved directives on executive compensation, to refrain from using company resources to cover any tax or legal liability for executives implicated for wrongdoing in options backdating, to commit to having shareowners annually ratify external auditors, and to take steps to make sure that board, committee, and individual director evaluations include substantial and meaningful oversight by individual directors and the board of directors as a whole.
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