Is backdating stock options ethical
From a consumer's perspective, customers rely on companies to provide goods and services.When those firms have no ethical boundaries, their wares become suspect.Second, we discuss various stakeholder approaches (e.g., government, directors, managers, and shareholders) by which conflicts of interest (i.e., the agency problem) can be addressed.Third, we assess the practice of backdating stock options, as an illustration of the agency problem, in terms of whether the practice is legally acceptable or ethically justifiable.Although this practice gave the senior executives significant stock holdings, since the grant was issued at-the-money, the share price had to appreciate before the executives would actually earn a profit.A 1982 amendment to the tax code created an incentive for executives and their employers to work together to break the law.These changes reduced the likelihood of future backdating incidents. Check out Investopedia Academy's Options for Beginners course.With over 4 hours of video content and interactive exercises, you'll learn the fundamentals of options trading and how to employ effective strategies within the options market.
(See also: .) In the early 2000s, new accounting provisions were enacted that required companies to report their option grants within two days of their issue and also required that all stock options be listed as expenses.Betting on stock prices when you already know the answer is dishonest.A business run without integrity is a scary proposition.(See also: .) As a result, firms restated earnings, fines were paid and executives lost their jobs—and their credibility.The SEC reported that investors suffered in excess of billion in losses due to share price declines and stolen compensation.