First, when we started the company, Marc and I agreed that the company’s General Counsel would always report directly to me. This is different than in many technology companies where the General Counsel reports to the Chief Financial Officer.
This needs to be in bold 72-point font. Corporate behaviour aligns with corporate structure, and if the General Counsel is subordinate to the Chief Financial Officer, complying with the law will inevitably be secondary to making money.
If you want to avoid jail time, you should either have General Counsel reporting to the CEO or General Counsel / Chief Legal Officer appointed by and reporting to the board.
A few years ago I was approached by a headhunter for a publicly-traded software company about coming on as their general counsel. We had lunch to talk about it; my prior experience in that role was a good match for what they needed.
The search for a general counsel, though, had been commissioned by the CFO, who was politically powerful within the company, and who wanted the GC to report to him. I told the headhunter that, especially because this was a public company, in my view the job would have to report either directly to the board, or to the CEO with a dotted line to the board; I explained why.
The headhunter said he thought that would be a problem but would check. He later let me know that what I'd said had killed the CFO's interest in me. I later saw in the paper that they'd hired someone else, who was reporting to the CFO. Best of luck to them.
GC is similar to a chief security officer in the need to be as independent as possible to look after the interests of the company and be free from undue pressure.
For companies covered by Sarbanes-Oxley there are circumstances where the General Counsel is legally required to escalate an issue to the board of directors, or a subcommittee of it. That's going to be difficult and awkward if he normally reports to the CEO. So while there are pros and cons to a plural versus unitary executive, at least for public companies, it makes a lot of sense to have the GC report to the board or a specific committee.
So while there are pros and cons to a plural versus unitary executive, at least for public companies, it makes a lot of sense to have the GC report to the board or a specific committee.
Yes, I'd say that from a governance perspective the ideal situation is to have a GC or CLO reporting directly to the board. In startups the board doesn't necessarily do as much governing as they normally would, though, especially in the case of a founder-CEO; in such a case of a dysfunctional board, having the GC report to the actual nexus of decision-making (aka the CEO) might work better.
What's the supposed rationale for the General Counsel reporting to the CFO in the first place? Isn't a General Counsel supposed to be "general" and not only concerned with financial issues?
Often all or most administrative (read: non-revenue-generating, non-operational) functions for the company fall under the CFO--simply because the finance function is administrative but the CFO pretty much has to report to the CEO. The GC is administrative--as is HR, real estate, etc.--so they all often report to the CFO.
I wrote, "Fortunately I/T seems to be on it way out, though regrettably slowly." Noblethrasher and odonnellryan asked what I meant.
I am referring to "I/T" as a corporate computing function within the company, a function which often hiders rather than accelerates the business.
I/T typically picks technologies which are easier for I/T. Hence there's a corporate standardization on one mail system, one OS; very strict upgrade cycles etc. This kind of made sense in an earlier era when computing wasn't really integrated into the business processes -- people would be "on email" and if the icons changed an expensive "training program" had to be rolled out because the majority of working people had a passive aggressive learned helplessness towards computers.
What happened is that people became more savvy and worked around I/T. First it was the PC: the appeal of the Apple II was that you could buy one, add a copy of Visicalc, plunk it down on your desk, and get work done without dealing with those assholes in I/T. I/T (this is before CIOs etc) fought back (just look at magazines like Datamation from the 1980s to see; I am not exaggerating) and took control of the PC infrastructure. Around 2000 departments would start to put in wifi access points and local file servers under secretaries' desks to just get work done. I/T again was seen as a barrier.
Nowadays I/T is freaking out about "BYOD" because people wouldn't put up with the crappy company-issued blackberries etc. But it is making business more efficient and humane.
You could see the nails entering the coffin for a long time, but these things take time. When I was at MIT in the 1980s I would get a laugh when I would run across a piece of literature from MIT's I/T department about the computing crucial capabilities they provided to MIT -- because they had nothing to do with the systems we depended on in the research labs which were mature and two generations beyond what I/T offered. And even now, heavily computer-intensive businesses often have disjoint departments and technologies for their customer-facing work and their internal systems (a few huge products like Oracle are rare exceptions).
Oh, I definitely agree. I've worked IT for a while. It definitely serves as a barrier to work (oh, you want access to THAT file?! No way! You need someone to request it for you...)
However, that's not because that's what we wanted to do. That's because someone had the bright idea to bring a paper to the CEO, and he said "We can't just have everyone accessing every damned file!!!"
Believe me, it's just as rough being the enforcer as it is being the one being enforced!
However, I think we'll need people to fix computers, update the servers, and wake up at 2AM to put a fan in the server room ;)
Much of what a GC will do in a Silicon Valley company is support the CFO in ensuring legal compliance for finance and accounting. In this context, it can make sense for the GC to report to the CFO. In another sort of company where the legal issues might be more diverse, say a place like Wal-Mart that has complex labor and environmental issues in addition to the financial issues, this structure would be less appropriate.
Much of what a GC will do in a Silicon Valley company is support the CFO in ensuring legal compliance for finance and accounting. In this context, it can make sense for the GC to report to the CFO.
I'd say the exact opposite. If the GC is spending most of his time making sure that the CFO isn't doing anything illegal, the GC needs to report to anyone other than the CFO.
Yeah - they need to work together, but it doesn't seem like the GC should be in a position where they're being judged by the person they need to be watching. That's like the ratings agencies being paid by the banks they're supposed to be regulating...
For a lot of tech companies the primary area of responsibility of the general counsel is compliance reporting management (which is very closely aligned with CFO office). Outside of tech, there's often a lot more public policy work and critical incident management (which is why I often see them reporting through CEO outside of tech).
Some companies have every C level executive reporting to the CEO.
Some CEO's are big picture people and focus on external issues. This means that the company would usually have most functions reporting to the COO.
Sometimes it just makes sense to have a group report to an executive. Consider Groupon, its largest expense is marketing so it might make sense to have the Chief Marketing officer report to the CFO. It can also make sense for financial companies to have the Counsel report to the CFO as they would be doing primarily financial related duties, like compliance.
General Counsel is a special case as its a bit of an oddball case for companies where its not a core function and will often report to the COO.
IT can often be like the general counsel where it's not viewed as a core function or PnL center and thus report to another C level executive like the CFO or COO.
that rationale is that obeying the law is a financial decision rather than a moral decision. if the (money) price of breaking the law is less than the profit made by breaking the law, then the CFO will decide to do it.
this is THE classic example of corporate sociopathy. unfortunately its still the way a lot of companies do business.
It's not that simple. Running around thinking that CFO = evil sociopath is ridiculous. It's about motivation and accountability.
The story in the article is a great example, I don't think the CFO thought that she was breaking the law. It was a practice that she had engaged in previously, it was vetted by a big-5 accounting firm, and benefited the employees. The CFO was widely respected in the industry -- this wasn't some flimflam person or sociopath.
When your attorney works for someone else, that other party becomes the client. If you, as a CEO (or an individual) are ultimately accountable for the outcome of your decisions, you want the attorney working for YOU, so that you get unfiltered information to drive decisions.
my comment was a response to the question "why do some companies have the GC report to the CFO?". it was not about the company in the originally linked article, which obviously does not use this structure (and for good reason).
regarding that CFO from the linked article though, the federal prosecutor seemed to believe she was a criminal, and proved it enough that a jury agreed also and she eventually served jail time. we're not mind readers so we don't know how she felt about her actions, but honestly, it kinda looks to me like she really was a low level sociopath. just because she was surrounded by people who reinforced and validated her behavior doesn't mean she was acting morally.
I think this is a misuse of the word 'sociopath'. There are lots of things that are not strictly legal that we do all the time. Some of them result in in jail sentences (eg. possession of marijuana can hardly be called sociopathic).
I was not using sociopath as a synonym with "broke a law, any law". I was sociopath to mean "engaged in behavior that caused some level of harm to society". A low-level sociopath does something that causes a low level of harm to society. Accounting Fraud is a form of low level sociopathy, in my opinion.
How do you quantify jailtime in the 'price of breaking the law'? Also if the CEO has no knowledge of the CFO breaking the law, how can he be held accountable?
Speaking of quantifying stuff, if she only served 3 months that's not even that bad. Who knows how much money she made
the firm over time; it may well be a net positive over all. And I'm sure she could be properly compensated for the
jailtime.
yes there are far more than just financial issues for a GC to deal with labor law is just one area that is in no way in the remit of the CFO - who basically is just a bean counter.
I bit OT, but I saw something similar once where the head of QA reported to the director of development. So the guy in charge of QA's annual raise/bonus/etc was himself compensated based on hitting release deadlines. I wonder how people here would have set that up differently.
One approach is to have Quality Control report to the Product Manager, who reports to Business Development. This might be doubly beneficial since it could help reign in promises that don't align with proven product direction. Also, what many companies call "QA" is really just QC, that is, checking the outputs. Quality Assurance is focused the production process itself, that developers are properly trained and that development/testing processes are competent.
One approach I've seen at Microsoft is to have Product Management, Engineering and QA report to the General Manager. It seemed like a very good solution to empowering QA. I'm guessing that structure evolved because of the need to ensure that Windows worked on a vast variety of plaforms.
I have run a team where the QA manager reported to me. We did not suffer quality issues - because my responsibility & goals were to deliver quality products not just to release dates. So it really depends on business and upper management support in doing the right thing and setting the right goals.
>I bit OT, but I saw something similar once where the head of QA reported to the director of development.
This isn't OT at all since most HN readers won't be CEOs of publicly traded companies. Your situation is far more common.
A good guide for this is how the FDA manages Good Manufacturing Practice (similar to ISO 9000 except focused on, you know getting shit done instead of getting hung up on the process). One important part is the distribution of responsibility. They get extremely upset by situations like the one you describe specifically because of the possibility of undue influence on the results. Manufacturing, R&D, QA and QC have to be organized to ensure proper independence.
(Which also means if you hear about scummy behaviour from a drug company: that flows from the top).
-d
PS: little known fact: the FDA has armed enforcement personnel who WILL storm through the door in some cases where they believe fraud could be involved in endangering people. I know of cases of this on the pharma side at least -- the food side may be more lax.
Precisely. Within ISO 9001/13485 certified companies, an individual (usually head of quality/regulatory) is designated the Quality System Management Representative. This individual is explicitly powered by the chief executive with the "responsibility and authority to ensure proper functioning of the quality system" and expected to 'pull the plug' when quality/compliance is at risk.
One would think so, but there are a bunch of factors against once one gets close to something like the stock market. The two big ones are uniformity of financial metrics and honesty.
One of the huge problems in an unregulated stock market is that you have people exaggerating their financial position either because they aren't doing due diligence or because they are lying. Investors (including workers paid in stock options) have no way to evaluate the claims, and so you get exaggerated claims, false advertising in efforts to raise money, etc. We give some deference to those only seeking investment from small pools of friends or family, or those seeking help from venture capitalists who are presumed to be able to spot irregularities themselves, but on the stock market this is considered dangerous.
The second problem has to do with the convenience of stock analysts but is a related problem. The analyst always has less information than the CFO of the company he is analysing. Differences in ways of accounting lead to distorting effects as analysts read into them more of a difference than is justified by the facts. The stock market thus breeds a need for uniformity of accounting standards that small, locally supported and financed businesses do not need.
The result are things we call "securities law" which always includes "following the best practices from the relevant accounting organizations" (i.e. IASB or FASB depending on where you are).
Do the right thing is sufficient, on the other hand, if the business is a small one serving local markets and invested in by local individuals. It breaks down quite a bit as one tries to scale up.
What I take from this story is that the financial law is so complex and unapproachable one can not reliably navigate it without landing in jail, even being a seasoned professional. The author's council could have given him "yes" answer as easily as "no" answer - many other lawyers obviously did since 200 companies got "yes" answers from their councils. And he'd never known anything was wrong. Basically, one can become a criminal not only without knowing he's doing anything wrong, but even without a theoretical way of finding it out - unless you survey all the lawyers you can find, you can not know if a yes from your lawyer would land you in jail or not, and you have no chance of understanding the law even if you spend years studying it - ultimately, the only thing that matters is the word of the enforcers on how they understand it.
It's like living in the same apartment with alcoholic gorilla prone to random outbursts of violence. One day it eats too much of fermented fruit and you're toast. And you have no way of knowing when it happens. Maybe you'll get lucky and you'll be out that day. Maybe you won't.
If I had code that is that bad and unpredictable and nobody knew if it would work or not except by seeking an opinion of a soothsayer which nobody can validate until it's too late, and it would be prone to random catastrophic failures which nobody can predict or find out why they happened, even seasoned professionals, I'd say not even refactor it. Just bury it and start from the design up again and redo the whole thing. That's pretty much the financial code we have now, as far as I can see. Good thing I have to deal just with segfaults and buffer overruns...
The premise that the author would've landed in jail for implementing the backdating scheme is flawed. His CFO went to jail, but because in the process of choosing favorable dates for backdating her stock options, she ended up deliberately misstating her income for certain years on her tax returns.
By and large, people do not go to jail for simply picking the wrong plausible interpretation of tax or accounting law. There's even a Supreme Court case about this: http://en.wikipedia.org/wiki/Cheek_v._United_States ("The Court held that an actual good-faith belief that one is not violating the tax law, based on a misunderstanding caused by the complexity of the tax law, negates willfulness, even if that belief is irrational or unreasonable.")
With something like backdating, you're essentially going around saying that something happened on one date (the options grant), when it actually happened on some other date. While that may be kosher for the purposes of accounting, and PWC or E&Y will happily sign off on that, it doesn't mean that those assertions are thus okay in any other context. And that's not a subtle legal gotcha, it should be plainly obvious.
I'm not sure why it matters that much which day options were granted on that it is worth putting people in jail for. The company has right to compensate their workers any way they like. Including giving options for free or for any price they see fit, and doing that any day at any time. Of course, our tax code being as weird and byzantine as it is, that may mean that some ways of giving options may end up in people paying less tax than other ways, and thus we have even more complex and byzantine system of laws that prevent people from taking advantage of it. But I see it as a deficiency of the tax code, which allows you to pay different depending on the various tricks and loopholes.
Now, the part where backdating is hidden from the people who have to have control over the matters - like shareholders - is another matter. That is violation of trust, embezzling and fraud. But I see no sign of it in the story we were told - I see no sign that the dating that was proposed were to be hidden from workers or shareholders.
The articled linked in HN leaves out the actual basis of the indictment: http://www.justice.gov/usao/can/news/2010/2010_09_16_abrams.... ("In April 2002, her joint federal tax return for the tax year 2001 was filed with a Form W-2 that included a 2001 taxable income that was calculated in part on a number of her Mercury stock options being exercised on April 4, 2001. When her joint 2001 tax return was filed in April 2002, she knew that on April 4, 2001, she had not yet told Mercury what options she was exercising. She also knew that on April 4, 2001, there had not yet been a written action by the Mercury Board of Directors that formally approved the executive loan to pay for the options. Abrams was aware that Mercury’s Stock Option Plan required notice of exercise and payment before a stock option could be considered exercised. She also knew that on April 4,
2001, her stock option exercises had not met those requirements. By failing to meet the requirements of the Plan, Abrams endeavored to claim an exercise date on which the company’s stock price was lower than on later dates. This caused her to file a tax return and amended tax return that understated her wages and caused the IRS to assess an
incorrect amount of tax for 2001, thereby obtaining a tax benefit for which she was not entitled.")
Basically, she said on her tax return that she had exercised her options on April 4, 2001, when not only had she not done that, but she hadn't yet met the requirements for being able to exercise her options at that time. This is not being burned by some esoteric rule where she checked Box A when she should've checked Box B. She filed a tax return that said something happened on a certain date that not only didn't happen on that date, but couldn't happen on that date.
That's why Horowitz's premise is false. He wouldn't have gone to jail for implementing the same backdating scheme. Tons of companies did it, very few went to jail, and those who did went to jail because they let the backdating fiction cause them to either lie on their tax returns or commit affirmative fraud on investors.
Also: to make a more general point--companies are entitled to compensate executives in whatever manner the shareholders will tolerate, but public companies aren't entitled to be deceptive about it. That was the problem with backdating: while the process itself was legal from an accounting standpoint, the fact that it was built on a fiction made it easy to cross the line into outright deception. The wikipedia article actually has a great sentence that captures the whole situation: http://en.wikipedia.org/wiki/Options_backdating ("To be legal, backdating must be clearly communicated to the company shareholders, properly reflected in earnings, and properly reflected in tax calculations.")
sounds like she was punished for a disruptive innovation - "backdating of stock options exercise". Backdating of grant is cheating at the expense of shareholders whereis backdating of exercise - at the expense of IRS :)
I'm not sure what's the point of exercise backdating anyway - once the option is granted, the base price is fixed (and thus the base from which the tax is calculated), and all you can do is to change the resulting stock price, but the result of exercising at date X and holding to date Y and just exercising on date Y seem identical to me - you still have a stock priced at the spot price of date Y. Maybe some tax law details matter here - which would reinforce my point that it's too complex for its own good.
there are differences. For example, the profit from the grant date to the date of exercise is ordinary income - taxed at your bracket rate, while any profit coming from holding for longer than 1 year after exercise is at long-term capital gain - 15%.
the risk isn't the same. Instead of capital gain a capital loss may happen - for example when you own stock, like, in particular, after exercise. Whereis in case of stock options there is no risk of loss before exercise. The stock options may be worth 0 - that is the lowest possible outcome, and you wouldn't be charged a dime if the options are underwater. Just like bonus - company pays to you when things are great, yet you don't pay to company when the things aren't. Thus the same ordinary income tax treatment for stock options exercise profit as for bonus.
It's like living in the same apartment with alcoholic gorilla prone to random outbursts of violence. One day it eats too much of fermented fruit and you're toast. And you have no way of knowing when it happens. Maybe you'll get lucky and you'll be out that day. Maybe you won't.
That's pretty much it.
I remember not feeling any sympathy for my friends who ran in to tax problems. It's easy to assume that this stuff is well understood and it must be their fault for failing to do it properly.
What I found out later is that even if you make every effort to pay your tax correctly, you will still get screwed eventually.
Provisional tax law, for example, requires literally knowing the future to avoid penalties.
I'm in New Zealand and I thought it was complex here. Then I encountered the US tax system. Holy crap!
Even hiring expensive US accountants our company still managed to get a 20k fine out of nowhere for reasons I don't understand. Supposedly this is being appealed and our accountant assures us that we will get the fine rescinded, but there you go.
As a funny example, I read the 1040 instructions each year and some interesting points are included regarding "claiming kidnapped children" and "whale captains deducting specific expenses." If they are devoting time to these sections in the general instructions, then it's gotten out of hand.
There's a big difference between going to your general counsel and asking "Is this legal?" and going to your accountants and saying "Find me a way to make this legal enough." I think the options-backdating was an example of the latter.
In the case described in the story, I don't see any signs of the former. The CFO proposes certain practice, it is not obviously illegal (like not paying taxes or stealing office supplies from competitors at night), hundreds of companies do it, hundreds of lawyers approve it. If the CEO asks the council if it's OK and the council says yes, like hundreds others did, he goes to jail. If he's lucky and the council says no, he gets to write a book "how I almost went to jail but my super-smarts saved me". In both cases I don't see how this situation is good.
I'm not sure that conclusion is warranted. Here's what we know:
1. Loads of companies were doing it.
2. When this company wanted to do it, their counsel said it was illegal, so they didn't.
Given those facts, we can't say that the other 200 companies were simply flummoxed by a too-complex regulatory framework. They may just have well had their own meetings and said, "This looks fishy, but everyone else is doing it, and we get more money." Or maybe they did no due diligence at all, and just did it anyway. Once caught, obviously many people would claim an honest misunderstanding, whether or not there was one.
Frankly, I'm skeptical of the whole, "the jail sentences were handed out arbitrarily" angle. It seems the opposite of arbitrary -- the person who instituted an illegal policy in multiple companies was punished. The law may be complex, but when you're making C-level salaries, I'm sorry but you're expected to figure out if you're committing a crime or not.
I'm not saying it was arbitrary from regulator's side. I am saying it would be arbitrary for you because you won't know if you're in the wrong or not.
>>> but when you're making C-level salaries, I'm sorry but you're expected to figure out if you're committing a crime or not.
I'm not sure how it has anything to do with the salary. I'm sure whichever lawyers OKed this practice - and I would find it very hard to believe hundreds of companies would just decide to wing it without asking a lawyer - I'm sure they were paid enough. They just thought it'd be OK, but they were wrong. How the salary helps to deal with that? Unless you're claiming the salary is just compensation for the possibility of being jailed for something you have no idea you were doing wrong. In which case I'd prefer a system with more transparent laws and lower CEO salaries.
The "arbitrary" I was referring to was from the article -- a direct quote from Horowitz.
I'm saying that if knowing things like the legal requirements for running a company isn't expected to be part of your job, then you should pay someone a hell of a lot less to do the job than most executives are paid. If you just want someone to wing it, give me a call -- I'll work for probably 10% of the salary.
It's not that the salary is compensation for the possibility of going to jail. It's that compensation correlates with responsibility. If you hire a programmer for $250,000 a year, you damn well expect him or her to be better, more responsible, and more independent than one you're paying $50,000 a year. If not, then what are you paying 5x as much for? So if I hire a CFO at say, $3.5 million a year plus stock options and all the other perks (that's Google's CFO compensation at the moment), what am I paying for if I can't assume that they won't have bothered to figure out the accounting laws?
Also, you're assuming that companies would be innocent, unknowing participants here. That's an assumption that, very often, turns out to be false when we have occasion to check. I don't think all those valley companies thought they were allowed to enter into those wage-dampening agreements, but they still did it. I don't think that was an honest mistake or misunderstanding of the law. I don't think Enron, Tyco, Global Crossing, AIG, and a million other examples thought they were shining beacons of moral virtue victimized by a complicated legal system either. People, and by extension corporations, will quite often break or at least flirt with breaking the law in exchange for money. You're asking me to just take your word for it -- sort of a "well obviously we didn't mean to do anything wrong" defense. It isn't obvious.
That's what I am saying - responsibility is in finding what is right to do and doing the best you can in the situation. But what if the situation is such that there's literally no way of knowing what is right and what is not? If the law is so impenetrable that basically asking a lawyer is akin to going to an psychic - he gives you the answer, charges a lot of money, but you have no idea where it came from, is it true and if you can rely on it or not. How you can be a responsible CEO if you have to rely on psychics to do your jobs?
>>> what am I paying for if I can't assume that they won't have bothered to figure out the accounting laws?
Again, that's what I am talking about - I think it would be much better if the laws were such that you don't have to hire 3.5 mln/year CFO and still not be sure if that all won't end up in trouble.
>>> . I don't think all those valley companies thought they were allowed to enter into those wage-dampening agreements, but they still did it.
That is entirely different topic, but I see you presume you have the right to tell companies how they should pay the workers. I have no idea where that came from to you, and if you do, you're the part of the problem. That is exactly the reason why these laws are so bad and convoluted - because everybody wants to pull a bit of it to their side and carve a little loophole in the law to add a bit more power to himself. I want to be paid more (no matter I'm already paid well into six figures and am in one of the best paid professions in the world) - so I want a law that tells the companies to pay me more. Then the company comes and makes their private law that makes a loophole for them so they don't have to. And then you come and carve another little loophole for yourself. And pretty soon you need a 3.5mln/year professional to figure out what your employees should be paid, and you still get sued for millions because apparently some bureaucrat disagrees.
True, I presume to tell employers that they are responsible for following the law.
I think you're exaggerating the complexity of the legal system to attempt to support a point that doesn't warrant support. In the article, Horowitz took the proposal to his company's legal counsel, and quite quickly, counsel came back with, "this proposal is illegal". It's not impossible to determine that -- it was actually determined correctly in the real world.
"Later that year, Schmidt instructed his Sr VP for Business Operation Shona Brown to keep the pact a secret and only share information “verbally, since I don’t want to create a paper trail over which we can be sued later?"
This isn't a case of a company honestly trying to follow the law and being victimized. Schmidt knew that he was opening Google up to legal action, and he did it anyway because it saved him huge amounts of money.
If these companies think the laws are bad, it's not like large corporations have no political power. They're free to buy as many votes as they always do and get them changed. Until that happens, they can suck it up and abide by the anti-trust laws in force in the country they've chosen to incorporate in.
It was determined in this particular case. But in many other cases, it was not, and this scheme was approved, for example, by PWC.
>>> This isn't a case of a company honestly trying to follow the law
First of all, this is not the case that we were discussing - it has very little to do with financial law. Secondly, in current climate, where companies can be sued for basically anything, given they have enough money to be attractive targets, of course that makes executives to try and minimize the exposure. Even though company is supposed to be able to choose their worker's pay as they please, obviously it is not so - the populist politicians want to mess with it to get themselves elected. And thus a savvy executive would certainly not want to make it too easy for them. It turns into an adversarial game, and the results are not good for anyone.
>>> If these companies think the laws are bad, it's not like large corporations have no political power. They're free to buy as many votes as they always do and get them changed.
That's what they are doing. That's where the regulatory capture comes from. As a result, the law becomes more and more complex, as each company and each interest group carves a loophole in the law for themselves and pours millions into buying off politicians. As a result, we get completely corrupt politicians, the law that is trying to serve a thousand of special interests and no longer has any connection to what was the original purpose of the law - to protect people's rights, huge barriers of entry to the competition, billions spent on political squabbles instead of doing something productive (think about how many people one could feed and clothe for the cost of one election campaign) and ultimately the consumers and taxpayers paying for all this baloney. And you response essentially is - if you don't like how we do it in America, GTFO? Is this really the best you can do?
You're right, I noticed it after I wrote it that I used the wrong word but was too lazy to fix it until it was too late :) Also, the "former" should be "latter" in the post. Too late to fix that too. But I think the meaning was clear anyway.
hmmh... a manager changing the date on a contract after the fact so it generates more money for him/her is actually pretty obviously a red flag. Kudos to Ben for doing the right thing. If the government couldn't prove beyond a reasonable doubt to a jury that it was wrong, she wouldn't have gone to jail. (Not saying innocent people never go to jail, but it's not like she was an indigent defendant, she had a lot of resources and incentives to fight if it was defensible)
That's not true at all. This is a federal system, and she probably plead guilty because her choices probably were plead guilty and get 3 months in jail or plead innocent, go to trial, and get 20 years. The federal system is beyond fucked up, and they are making it worse every year.
Someone decided that this individual needed to be made into an example and go to jail for some nominal amount of time. Period.
Go to trial, and they would find some statement made in hours of interrogation that wasn't 100% accurate, and convict her of lying to a Federal officer.
This is the USA, don't talk to the authorities without a lawyer, and don't say anything if you can't say the truth. If she doesn't know that she has no business being a CFO.
If the contract is to create another contract effective at a specific date based on what makes more money for the employee, that raises no red flags in my mind from a legal perspective or an accounting principles perspective.
Unfortunately those are not the only things at issue. One key thing involved is uniformity from an investor's perspective and I think that's where the idea runs off the rails.
For an early stage startup, options value doesn't really change much month to month, since it is typically only determined at funding events. In such a scenario, the price of option grants is purely strategic.
But for a publicly traded company, backdating may change the financials presented to investors unless the math is done and the changed numbers are explicitly presented.
> financial law is so complex and unapproachable one can not reliably navigate it without landing in jail, even being a seasoned professional.
The CFO of the little company I worked for in the mid&late 90's said her colleagues were calling FAS 123 (draft in 1993, revised in 2004) stock option accounting guidelines from FASB the "aircraft carrier" document because of its size. The PDF http://www.fasb.org/pdf/fas123.pdf is only a little over 100 pages, but it's some dense dense stuff and I'd guess 10x that length has been written in interpretations.
A change in the benefits to employees that doesn't result in a corresponding adjustment to the books raises a red flag to me, and I'm not an expert at all.
The author was probably giving too much benefit of the doubt to his former CFO. She was probably being a bit lazy and probably tried to be a bit too clever. I'm not saying the cleverness was greed; it may be as simple as wanting to feel like she could really contribute something to the company beyond what an ordinary CFO could do.
But accountants are supposed to be above that. Accounting regulations are there to protect investors from a million kinds of cleverness that have proved disastrous over the past few thousand years.
My only complaint is that the government itself is not held to the same standard of accounting.
This exactly what financial law is for. So anyone can be busted at any time. It is working as designed - but designed by whom for whom's benefit, you might ask.
It's difficult to take this opinion seriously when the comment author is so unread about the law that they don't know the difference between "council" and "counsel"! It's a very strong opinion which is devoid of any learning or context whatsoever -- has the author never heard of Arthur Andersen?
I concluded that someone who can't distinguish counsel and council has probably not read a lot about legal issues, and probably has an uninformed opinion on them. So it's probably not meaningful when they decide that government and law enforcement are like an angry, unpredictable gorilla.
I can distinguish them - I just noticed I used the wrong one when I already submitted and was too lazy to fix it as I assumed everyone intelligent would deduce what I meant. I type fast and sometimes make typos and sometimes use wrong words if they sound alike because my fingers run ahead of my brain. Usually I catch it before submitting, sometimes I do not. This was the time where I didn't. If it prevents you from understanding the text - well, I'm sorry, I guess I can't get everyone. Some would just zero in on typos and ignore the message. Protip: I probably also used a bunch of articles wrong (my native language has none) and maybe some other grammar errors crept in too. It's OK for you to dismiss everything I wrote as nonsense.
A typo is an error which results from the fact that you are typing. Consistently using the word council in place of counsel -- not even once getting it right, suggests to me that you have not even read enough about legal issues that you have seen the word in print. I understand that it can be difficult to parse the phrase "the council considered the counsel of the counselors before counseling the councilors" -- yes they are homophones in some dialects of English.
In this case, coupled with your exceptionally unsophisticated understanding of the law, and not even a passing familiarity with the issue at hand, I'm more inclined to believe that you didn't actually know the difference until it was pointed out to you. I mean, you said in your comment that it doesn't seem "obviously illegal" to lie about the date when an option was granted. I don't think you even understand what options backdating is, or what was happening in the accounting world at that time. You just seem like a guy who wants to complain that government is arbitrary. Your only evidence for this is that a reasonable CFO would have looked at other CFOs and copied their behavior, therefore nobody could possibly be held responsible.
It amazes me how you were able to deduce the depth of my knowledge about the tax law and financial law and English and current events from one comment and one typo (albeit repeated a bunch of times). Obviously, you have a direct access to my brain. That makes further discussion completely redundant, as you already know all my answers as soon as they form in my brain, thus eliminating the need for me to spend time on typing anything. It is only a pity that I can not possess the same ability - I'm sure you had very interesting and insightful comments on the topic itself, as opposed to my spelling, but being busy with the latter, could not find time to get to the former. My fault entirely, of course.
I like how you completely sidestepped the rebuttal of your argument which I also added in there. And how you've failed to respond to the question of why someone who can't demonstrate that they can distinguish council and counsel should be taken seriously on such a matter -- especially when they are making such bombastic claims. If we look further on in the thread, you make even more ridiculous claims, for example, that companies should be able to compensate their employees with free options.
Don't you think it's incumbent on someone who takes these positions to demonstrate that they understand why the law requires proper dating of options, or FFS why income tax exists even, as your proposals have very broad reaching implications?
There's a flip side to your loud and persistent focus on his misspelling. Why should anyone take you seriously on the matter when you refuse to address his points? At least he was writing about the topic at hand. All you've done is throw a temper tantrum about "ci" vs. "se".
Nice distraction though, are you a politician? They're really good at the whole "all sizzle and no steak" thing.
> What I take from this story is that the financial law is so complex and unapproachable one can not reliably navigate it without landing in jail, even being a seasoned professional.
Because this story was written by a liar and/or idiot.
Option accounting law is simple and clear. Market value – exercise price = loss taken by shareholders. This goes in the quarterly report so the shareholders know how much they spent on employee compensation.
The financial planner "Michelle" was trying to simply not report the cost, to fraudently make the numbers look better. This is one of the oldest frauds in the book. Frankly I am amazed she did not get multiple life sentences for her crimes.
The story author falsely tried to make it look like some sort of terrifying subtlety, an accounting landmine that nearly blew off his leg. It is not. Every responsible accountant would start shitting kittens if confronted with this fraud in their company.
Edit: From other comments, the story was not even about the actual crimes. So the author is not an idiot, but manufacturing a scare story Daily Mail style.
Strangely, at the time that this all occurred, there was a glut of feral kittens wandering around Mountain View. I always wondered where they had come from, but now I've got a good explanation!
or "How I Hired a White Collar Criminal And Avoided Jail"
"On May 31, 2007, the Commission charged Abrams and three other former senior Mercury officers with perpetrating a fraudulent and deceptive scheme from 1997 to 2005 to award themselves and other Mercury employees undisclosed, secret compensation by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expense. The Commission's complaint alleges that during this period certain of these executives, including Abrams, backdated stock option exercises, made fraudulent disclosures concerning Mercury's "backlog" of sales revenues to manage its reported earnings, and structured fraudulent loans for option exercises by overseas employees to avoid recording expenses." -- http://www.sec.gov/litigation/litreleases/2009/lr20964.htm
"Noting that criminal tax evasion cases are relatively rare, prosecutors called Abrams' crime "a disturbingly familiar case of a wealthy defendant manipulating a system to gain more money."
It's all politics. It's phrased as a "mistake" because anything more would admit to being aware of the fraud, regardless of whether or not that's the case.
This looks one of those cases that could have gone like this:
"Someone proposed an idea that was perhaps technically legal, but obviously failed the sniff test of ethics and spirit of the law. I reminded her of what I repeatedly tell our staff at welcome/training meetings: At this company, we do what is right, for our employees, our customers, our investors, and the public. We don't mislead one to help another. We don't waste time splitting hairs about whether something smells bad or is totally rotten. If we're not proud enough of an action to want to see it on the cover of the New York Times, we just don't do it."
Just as it's hard to tell if someone's a good coder without yourself being a good coder, it's hard to tell if an attorney or financial expert is giving you good advice without seeking for yourself a basic understanding of the legal or financial issues. A good attorney or financial expert will help you understand the issues enough for yourself to see why their evaluation makes sense. It's not good enough to just completely outsource responsibility to someone else.
Always do and trust own analysis (with an attorney or expert you trust when needed) instead of falling for the lure of "it's fine with these other experts so it should be fine for us." That's a recipe for a herd mentality random walk through and across the gray areas of the matter.
One red flag in this case is that the CFO referred to PwC, a major accounting firm that her former company paid for some advice, as a reason why everything was OK. This amounts to "trust me" because you have no access to the terms under which PwC was retained by the other company and no idea who actually examined the options accounting or under what circumstances. Shady dealing is often obscured by appeals to a higher power.
If you run into this in your own company you should be suspicious and try to get the company to hire an independent expert to review the situation, which is exactly what Ben did. For an expert to be truly independent they need to be retained by someone outside the group under suspicion.
Suspicion is not a bad thing as long as you deal with it promptly. Dealing with it clarifies the situation and removes the suspicion, one way or another.
Not to be cynical, but isn't this why "consulting firms" exist? Part of their job is to just some "reputable" outside justification for something someone internally wants to do anyway. It's to cover their ass.
When there are mass layoffs, they hire "consultants". Because nobody inside wants to really take responsibility for the decision. It's better politically to have it come from some "outside objective analysis" (of course there is not such thing, and outsiders are often the worst people to make such decisions.)
The way you describe it they are the worst sort of consultants. I once worked on a project that a big 5 consulting firm was charging 1.7 million to deliver. After 6 months, a tech savvy guy convinced the CEO to hire me for 3 months to sort everything out. I came in, had systems up and running partially (but delivering useful results) in 2 weeks. Then I spent the rest of the 3 months delivering every deliverable that the big 5 firm was behind on. The customer refused to pay the big 5 firm's bills and took them to court to recover money already paid out. The big 5 firm settled out of court by returning all money previously paid plus 90,000 for my bill. It was one of those secret settlements which is why I am fuzzy on the details, but when I mentioned it to other people in the software development business, the stories poured out.
Note how Ben Horowitz did not just farm out the decisions to a prestigious consulting firm but gave it to a guy that he knew and who he had carefully checked out in order to know that he was trustworthy.
I once went into a project where the runtime for a complex financial calculation (as complex as it can be) was 8 to 10 hers. In 2 weeks it was 37 seconds and working perfectly. When the CFO took me for dinner, I told him that 90% of the work was the old implementation, which set the right concepts, and I merely did an optimisation. Many times, the first take is not optimal, but I always try to appreciate the input I get even from suboptimal implementations.
>Always do and trust own analysis (with an attorney or expert you trust when needed) instead of falling for the lure of "it's fine with these other experts so it should be fine for us."
I think the problem arises when you're a CEO/Executive of a company and don't have time to do this yourself.
I pretty adamantly disagree. A CEO is a specialized role just like any other. I wouldn't expect a developer to know the ins and outs of financial compliance, and the same holds for a CEO and specific compliance rules.
Elon Musk said accounting rules are the easy part of being a tech CEO. [1] Anyone smart enough to be a technical CEO is smart enough to get on top of the non-technological core functions of a company; and having the CEO on top of them will be better for the company.
1. From memory; it was on video and I can't find a text reference now; in reference to SpaceX already using strict enough accounting controls to be Sarbanes-Oxley compliant even though it's a private company, IIRC.
It's not a question of "being smart enough." It's a question of focus and "having enough time." The CEO's job is to lead and delegate and manage, and to trust that the CFO and GC are on top of the details.
Also, while Tesla and SpaceX are great, I'm not sure I'd unquestioningly accept every word Elon Musk says as absolute fact.
Fundamentally you as CEO are quite literally signing your name to a heck of a lot of policies and financial statements. You don't need to know the exact details of a situation to want to get a second opinion before signing your name on something official and legal that you're mailing into DC.
Except they can't, which is why other people are hired to fulfill those roles. I can extend your argument and say that the CEO should be involved in every detail of the company because, after all, "if the CEO doesn't have time to make sure the company [is doing X properly], hey don't have time to be the CEO."
The CEO in the linked piece didn't need to get down into the weeds of the accounting laws, he just needs to know to get a second (outside/unbiased) opinion on anything that smells even faintly and remotely fishy that he's signing off on, and he needs to keep a general eye on principal/agent problems or conflicts of interest in the people he manages.
And he needs to know that the outside opinion is actually the same opinion that would be shared by a potential prosecutor / judge / jury. And he needs to have enough intuition to know that something smells fishy. And that it is a bad fishy smell, not a good fishy smell.
1. Backdating stock options per se is not what's the legal problem -- it's that failing to account correctly for the resulting compensation charges ("comp charges") can result in materially-false filings with the SEC.
2. It's a different problem as far as the internal politics are concerned. When a company properly records such comp charges in its financial statements, can depress a company's financial results and with it the stock price. Hence, there's an incentive to avoid recording such charges if at all possible.
3. Now consider the interest groups / constituencies and their incentives:
+ Employees, sometimes vociferously, want the lowest strike prices they can get for their stock options -- that can be especially true for executives who have big grants -- and they want the stock price to be as high as possible (hence they're not wild about recording comp charges).
+ Board members would like to keep employees happy, especially executives, and of course themselves and their fellow board members, if they can. Issuing options with an in-the-money strike price can often appear to be a cost-free way of promoting general happiness.
+ On the other hand, the constituencies that have a strong interest in strict legal compliance -- mainly the law and finance departments -- are often weaker politically than the ones who want the low strike price and the high stock price.
As a result, there can be a lot of subtle pressure on a CFO. Employees and even senior executives can say, "look, doing this in-the-money option grant, without recording a comp charge, is OK with our audit firm and with our outside counsel --- what's your problem? Why shouldn't we rely on them?"
(The unstated subtext being, they're the experts, not you, and we like their answer better than yours.)
Finally, let's not forget that outside accounting- and law firms are motivated to keep their clients happy, to be perceived as team players, and ultimately to get hired for repeat business. They definitely have incentives to tell clients what they want to hear if they can possibly do so. Stir in the fact that when these professionals can come up with "creative" ways to make their clients happy, they gain in reputation with other potential clients and with their professional peers.
All this means that the company's senior executives and its compensation and audit committees need to be willing and able to stand up to the pressures the other way. That's been made easier by the news reports of people going to jail and being permanently barred from serving as officers or directors of public companies.
Backdating stock options per se is not what's the legal problem -- it's that failing to account correctly for the resulting compensation charges ("comp charges") can result in materially-false filings with the SEC.
> Finally, let's not forget that outside accounting- and law firms are motivated to keep their clients happy, to be perceived as team players, and ultimately to get hired for repeat business.
Accounting compliance is serious business, for the simple reason that when irregularities cause a company to restate its books and tens of millions of dollars just vanish, it can be very difficult to tell the difference between honest mistake and purposeful manipulation.
True, and I don't understand why he wouldn't have brought that up. When he wrote
"The SEC issued Michelle a Wells notice, a letter
stating that it planned to recommend enforcement action
against her personally. It was not an indictment, but it
was a formal investigation, and it would be very
distracting. I had to ask her to step down."
... he made it sound like he threw an innocent (as in "until proven guilty") and valued employee under the bus at the first sign of trouble. The way he recounts the story, it doesn't sound like he had a good reason to do that at the time. He went out of his way to make Abrams sound like a victim, even at his own expense, when that apparently wasn't the case at all.
I don't think there's any way Ben could have known that she claimed on her personal tax return an exercise date for her options that was not the actual exercise date. I doubt the Feds knew that when they issued the Wells notice. Her ex-company probably didn't know. At the time of the Wells notice, she was probably the only person who knew she had lied on her tax return.
And, though it sounds silly after the whole stock option backdating brouhaha, many people did not seem to think that these practices were illegal at the time. Even Steve Jobs was accused of it (though never charged.) United Health Group, KB Home, Brocade, and Monster Worldwide all had executives who were found to have broken the law on backdating. It's possible these executives did not think the practice was illegal (maybe because their accountants had told them it wasn't) and likely they thought that it was a law not enforced (because it had not been enforced until the WSJ brought the practice to light in 2006.)
"Even" the guy who stole from his business partner and supposed friend? The fact that Jobs was doing something isn't much argument that it was legal or right.
I really enjoyed reading this story. Now imagine being in this situation if you don't have a Jordan: you've got this super reputable head of finance who implemented this great option granting process at another huge company (PwC in this case) that was approved by their accounting team, how do you figure out if the process is legit? Where do you find people like Jordan?
The accounting practice was not implemented at PwC. Mercury Interactive, then a client of PwC, is the "huge company" in question. PwC simply approved of it.
Just curious. Suppose you did your due diligence, asked your general counsel, and they said, "It's within the law, go for it." Then, acting on their advice, you did the same thing this person did. Would you go to jail for the same amount of time in both cases?
E: Name removed to protect the accused, although it's thin protection indeed considering her name is disclosed elsewhere in this thread.
Acting on advice of counsel is indeed a defense. You have to show that you disclosed all relevant facts to your attorney and that you acted within the parameters of that advice. Tbe government may try to get around this by alleging a conspiracy between you and your attorney and charging you both. This is unusual. Not rare, but not the norm either.
The government will subpoena your attorney as a witness and threaten him with this. Your attorney will then claim that you failed to disclose X relevant fact. The defense will not be allowed where you failed to disclose all the relevant facts to your attorney. There is a good deal of case law on these issues.
Almost always, something like this just results in a civil investigation and monetary penalties if the SEC concludes you did something not-kosher. The criminal indictment for "Michelle" was for tax evasion linked to the back dating: http://ww2.cfo.com/accounting-tax/2008/04/mercury-interactiv.... In general, tax crimes require a high standard of "willful" violation in which the defendant purposefully violates a known legal obligation. A violation based on a good faith reliance on a reasonable (or sometimes even unreasonable) interpretation of the tax law will not meet the standard: http://en.wikipedia.org/wiki/Cheek_v._United_States.
Fascinating. Based on what everyone is saying, it seems like it is relatively much more difficult to wind up in jail if you are trying to do the right thing.
Presumably at that point your general counsel will inform your defense counsel of the legal theory upon which he told you to "go for it", and you'll see whether it holds up at trial.
The Wikipedia article on options backdating notes that Steve Jobs was investigated for fraud at Apple, but ultimately the SEC went after Apple's CFO and general counsel at the time.
From reading the first release, it sounds like the penalties imposed was for more than just the stock options thing described by Horowitz. It also describes fraudulent disclosures about backlog of sales and structuring fraudulent loans. So it's not necessarily the case that Horowitz would have had to serve jail time if he had gone along with his cfo's proposal (although he would likely have had to pay back his gains and possibly fines).
When I first read the blog, it certainly sounded like the SEC being overly harsh over a mistake made by a good CFO. But reading the release makes me think there was more to it than that. It's possible this is the reason why that excerpt wasn't published in his book.
Well, it also goes to show that public perception and reputation of a person can be largely at odds with reality. I like Horowitz's story, too, because it shows that even though people can do illegal things, it's very easy to do so with the best of intentions. Given the widespread nature of options backdating at the time, Michelle may have even been under the impression that her proposal was one of the "tricks of the trade," so to speak.
What is described here doesn't sound strictly illegal.
It is my understanding that most of the options violations (of various forms) stem from not carrying the options as the liabilities they are. It was usually pricing them at zero cost until exercised as many companies did, or backdating them and drastically changing their value.
I think you could re-write your summary as: I ran an accounting decision that worried me past my lawyer.
There might be a bit of hagiography of the GC in the original story based on what Ben now knows could have happened. For all we know, the illegality of the scheme could have been glaringly obvious to any lawyer.
This might be a naive viewpoint, but I don't see how this could be viewed as legal. If I as a retail investor in equity or equity options in a company was approached by my broker and asked what day in the past I would like to use for my cost basis calculation, that would sound pretty fishy. Why should it be different for inside holders?
Stay away from mirroring PWC policies unless all your executive officers have a degree in commerce, finance, and law. Because you'll need all three to get out of the fraud charges you'll be slapped with.
The reader is invited to do some research into what companies PWC has done accounting for.
What boils my blood is this woman going to jail for doing something that was accepted practice and approved by PwC, where seemingly no criminal intent existed.
Laws that are that opaque, where interpretation and enforcement can change at the whim of regulators and their bosses, are not morally justifiable. IIRC Steve Jobs did the same thing at Apple and they (predictably) got a slap on the wrist.
When this was going on I was running a small public co. and our counsel (outside but on BOD) was dead-set against any options dating shenanigans, despite what others were doing, so I guess I agree with OP's main point -- that having the right reporting structure can save your ass.
"In my reference checking, at least a dozen investors told me that they made far more money when the numbers disappointed than when the company outperformed, because they trusted Michelle when she said that things were not worse than they appeared and bought on the dips."
anybody sees any wrong here? Beside private hush-hush, there seems to be the same pattern - like with backdating of options - of optimizing interests of some selected "closer than arm reach" group at the expense of general shareholder population of that company.
That was an excellent article. One of the best that I have read recently about company management. Of course to get the full impact you need to do a lot of reading between the lines, but Ben does us the favor of leaving some broad hints. This really does have the flavor of a manager skillfully navigating the business through shark-infested waters, and IMHO, that is exactly the job of senior management. Including CTOs. While a CTO may not have direct responsibility for legal and accounting issues, they need to be fully aware of what their colleagues are up to, because, as Ben pointed out, another executive might be subverting the law in pursuit of some number. If that is happening and the CTO does not notice it and call their colleagues on that type of behavior then the CTO is complicit and will at minimum get fired, and could even go to jail.
Taking public money in any form, comes with obligations to play fair, and however much you may disagree with the laws or the people who made those laws, they are the current standard for whether or not someone is playing fair.
The weirdest thing here is that, mistakes or not, these law violations gives someone jail time.
Come on! At most, it caused monetary damages. The proper way to make it right is to apply monetary penalties (eg. fines). What's the reasoning behind locking up someone for that? It is not like the general public is being physically harmed, so 'Michelle' should not have to be physically restricted.
Besides, depending on the amount, a fine can set someone back for way more than 3 months. The cost-benefic analysis will make her thing twice next time.
>The proper way to make it right is to apply monetary penalties (eg. fines).
What's the reasoning behind that? In-kind punishment? If somebody runs over a family with a car, should their family be run over by a car? If someone rapes, should they be punished with rape?
TL;DR: author sought legal advice before doing something he thought was illegal. Turned out to be illegal. Didn't get in trouble because he didn't do it.
As this was intended for his book, I assume he wanted to extend her some common courtesy. He makes it clear that she was well liked and, in his opinion, had made mistakes, not committed fraud intentionally. Despite the matter being very public, I think it's reasonable, even kind, not to mention her actual name in this context in his book.
I'd be surprised if using a pseudonym for someone made you immune to libelling them.
Made up example:
"I once met a president of the USA, he was called Carrick O'Barmy [name changed to protect the innocent] he was snorting crack of a toilet seat at the time" ... doesn't look like it would if printed as a truth, but was really a lie, mean I would get off scott-free unless the context was clearly parody (or as here labelled as a fiction).
It makes it easier to pierce the veil of deception ('accounting laws are difficult and may land you in jail', 'the employees benefit', 'she had good intentions') that is offered as fragile support for the big picture conclusion when you are given names to research. Using a false name gives the story this warm fuzzy feeling of a "lecture from the trenches".
Well, I did not bother to search it, so as of now I don't know her name and it won't ring a bell if I see it in unrelated news. There's probably more readers like me than like you.
Probably a month ago I noticed a dead comment that was a lot like that one. It was posted by some user with an account a good bit older than mine, which makes it fairly old at this point. The user's whole comment history was filled with comments exactly like that, many a day. Felt like peeking behind something I shouldn't have.
"Michelle had no intention of breaking any laws and no idea that she’d broken any laws. [...] Once the SEC decided that most technology company stock option procedures were not as desired, the jail sentences were handed out arbitrarily. "
I find this quite disturbing. Especially the second part.
According to the numerous people in this thread who have made observations on who "Michelle", it's also probably quite untrue. Especially the first part.
With the 3.5 months sentence described in the article, they probably got off fairly well on a potential profit / jail time scale, compared to normal people who go to jail.
>The whole thing was a case of the old saying: “When the paddy wagon pulls up to the house of ill repute, it doesn’t matter what you are doing. Everybody goes to jail.”
I've never heard this saying, and Google comes up with nothing. Maybe this is a paraphrase of one of those raps Ben likes?
This needs to be in bold 72-point font. Corporate behaviour aligns with corporate structure, and if the General Counsel is subordinate to the Chief Financial Officer, complying with the law will inevitably be secondary to making money.
If you want to avoid jail time, you should either have General Counsel reporting to the CEO or General Counsel / Chief Legal Officer appointed by and reporting to the board.