Rim backdating options

Where It All Started The current controversy over options backdating was sparked by the research of an unlikely champion of corporate governance, a Norwegian academic by the name of Erik Lie, who is an assistant professor of finance at the University of Iowa.In his ground-breaking research, Professor Lie examined the proxy statements of more than 2000 large S&P companies to determine whether there was any empirical evidence to support his hypothesis that the dates of option grants were deliberately selected to coincide with a date on which the stock price was particularly low.

Evidence that companies in Canada are not immune from this latest corporate scandal came in the form of an announcement on September 28, 2006 by RIM - the maker of the iconic wireless email Blackberry devices - that it is reviewing its stock option grant practices as a consequence of the "heightened public awareness and concern regarding stock option grant practices by publicly traded companies".

RIM reported that its audit committee has already made a preliminary determination that "accounting errors" have been made in connection with stock options granted as far back as 1998, as a result of which RIM delayed reporting full 2nd quarter results.

Beyond such negative controlling measures, a more positive empowering approach based on ethics may also be necessary.

What ethical measures need to be taken to address the agency problem?

What values and norms should guide the board of directors in protecting the shareholders’ interests?

To examine these issues, we first discuss the role values and norms can play with respect to underlying corporate governance and the proper role of directors, such as .

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.

In this case, the original grant date is simply erased, and the actual date is substituted with a more favourable one.

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