Stock option backdating Essay Example | Topics and Well Written Essays - 1500 words

Stock option backdating - Essay Example Backdating can take on several meanings. The most culpable form of backdating involves "intentionally changing the date used to set an option's exercise price to one on which the stock's price was at a low" (Ellsworth et al., 2006). This form of backdating was abetted by the relatively lax legislation before the Sarbanes-Oxley Act was enacted in 2002. The Sarbanese-Oxley Act mandated that stock options be filed within 2 days after they are granted (FindLaw, 2002), mitigating the backdating problem. Before the Sarbanese-Oxley Act came into effect, option grants were reported using Form 5 which primary use is for the disclosure of "the transactions and holdings of directors, officers, and beneficial owners of registered companies" (Securities and Exchange Commission, n.d.). Furthermore, the form is required to be filed only "on or before the 45th day after the end of the issuer's fiscal year" (Securities and Exchange Commission, n.d.). This essentially means that if the stock options w ere granted early in the fiscal year, investors would not come to know of them until almost 1 year later, giving more leeway for insiders to manipulate the date on which the exercise price was established. Most of the 63 companies involved in stock option backdating "relate to a roughly six-year period prior to the Sarbanes-Oxley legislation" (Grant and Nuttall, 2006). ... Such company actions and policies include sloppy documentation, delays in the grant approval process, and the wrong interpretation of APB Opinion No. 25 Accounting for Stock Issued to Employees (Ellsworth et al., 2006). Summary of Statement No. 123 Accounting for Stock Issued to Employees prescribes that the intrinsic value or fair value based method of accounting be used for the valuation of stock options (Financial Accounting Standards Board, 1995). Most companies continue with the intrinsic value based method of accounting (Ellsworth et al., 2006). Under the intrinsic value based method, "compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock" (Financial Accounting Standards Board, 1995). If company actions are efficient, the measurement date would be the same as the grant date, and no compensation cost is recorded. More often than not, due to procedures such as the signing of the resolution by the directors, the measurement date would be at a later date than the grant date. If the price of the underlying stock has risen over the period between the measurement date and the grant date, the stock option is in the money and the difference should be recognized as compensation expense. Backdating occurs when companies, whether intentionally or unintentionally, choose to use the price of the underlying stock on the grant date as the basis for measuring the compensation cost. An example of the above form of backdating of stock options is Michaels Stores Inc., which understated compensation expenses by as much as $60 million between 1990 and 2001 (Bulkeley, 2006; Maremont, 2006). Michaels

Does wod strategy have a definite meaning in business parlance Essay

Does wod strategy have a definite meaning in business parlance - Essay Example With such rethinking, new ways are devised to counter the threats. Alternatively, some new opportunities may emerge in the environment which had not been there in the past. In order to take advantage of these opportunities the company reassesses the approaches it had been following and changes its courses of action. These courses of action are what we may call strategies undoubtedly strategy is one of the most significant concept to emerge in the subject of management. It has emerged as a critical input to organizational success and has come in handy as a tool to deal with the uncertainties that organizations face. It has helped to reduce ambiguity and provide a solid foundation as a theory of conduct business- a convenient way to structure the many variables that operate in the organizational context and to understand their interrelationship. When we think of long-term direction of an organization we immediately think of strategy. Matching of the resources and activities of an organ ization to the environment in which it operates is the basic requirement for strategy. This may be called as the search for strategic fit. Strategic fit is developing strategy by identifying opportunities in the business environment and adopting resources and competences so as to take advantage of these (Porter, 1980). ... Strategies exist at a number of levels in an organization. It is possible to distinguish at least three different levels of organizational strategy. Corporate level strategy (Andrews, 1987) is concerned with the overall purpose and scope of an organizational and how value will be added to different parts of (business units) the organizations. This could include issues of geographical coverage, diversity of products/services or business units and how resources are to be allocated between the different parts of the organization. The second level can be thought of in terms of business unit strategy (Hall, 1978) which is about how to complete successfully in particular markets. The concerns are therefore about how advantage over competitors can be achieved; what new opportunities can be identified or created in market; which product or services should be developed in which markets; and the extent to which these meet customer needs in such a way to achieve the objectives of the organizati on-perhaps long term profitability or market share growth. So where as corporate strategy involves decisions about the organization as a whole, strategic decision here need to be related to a strategic business unit (SBU). A strategic business unit is any part of a business organization which is treated separately for strategic management purpose. In public sector organizations a corresponding definition of a SBU might be a part of the organization or service for which there is a distinct client group. But confusion can often arise because an SBU may not be fixed in terms of an organizational structure. It may not be a separate structural part of an organization. The third level of strategy is at the operating end