The Economic Costs of Backdating Stock Options
I’ve mentioned before the excessive piggishness of UnitedHealth Group’s CEO, William McGuire, here and here. McGuire’s gluttonous sins include not only taking exorbitant amounts of stock options in addition to his already generous executive compensation, but the backdating of those options to give the greatest assurance possible that the options would have the maximum value. Aside from the unbridled greed of the thing, did McGuire’s actions damage the value of UnitedHealth Group?
Yes, according to a study reported on in yesterday’s New York Times. Researchers at the University of Michigan reviewed the performance of 48 companies that acknowledged they were under investigation for backdating stock options. The loss in stock value tied to the announcement of the investigation averaged 8%, translating to an average of $500 million per company. And that doesn’t take into account losses the companies may have to pay out to settle class action lawsuits. Those tempted to engage in similar rapaciousness, take note!