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Tuesday, December 04, 2007

oPtion$ book club - oPtion$ as Social Commentary

Since this is a discussion on an academic blog, it seems appropriate to consider how oPtion$ might contribute to our understanding of corporate governance, corporate law, and enforcement policies.  The power of satire as social commentary lies in its ability to point out indirectly those realities so blatant as to be frequently overlooked.  Unlike Michael Dorff, I think the book succeeds on this level. 

One small example: my son, who overheard me discussing the book asked  me "Who's Steve Jobs?'  Invoking fake steve's favorite retort, I replied "Dude, he invented the friggin iPod.  Have you heard of it?"  "I thought Apple invented the iPod," my son asked innocently.  "Yes," I explained, "but Steve Jobs is in charge of Apple."  My son persisted, "but didn't his workers invent the iPod?"

With one humorous line -- Dude, I invented the friggin iPod.  Have you heard of it? -- Lyons exposes a common foible among corporate executives.  They gladly hog credit for corporate successes and are quick to blame others, or factors beyond their control, for corporate failures.

More significantly, fake steve's attitude toward corporate regulation and law enforcement lends support to the academic school of thought that links compliance with law with perceptions of law's legitimacy.  Scholars such as Tom Tyler, John Darley and Paul Robinson argue that the extent of law compliance is determined less by concerns with penalties and more by an individual's sense of moral obligation to obey the law.  This sense of obligation is supported by perceptions of the legitimacy of the law and its enforcement mechanisms and procedures.  When law or law enforcement is perceived as illegitimate, the sense of obligation to obey the law erodes.

Fake steve's reaction to the options backdating investigations underscores this point.  According to fake steve, "These idiots went after dozens of companies in Silicon Valley.  They concocted a fairy tale about greedy executives lining their pockets and cheating investors, and of course the nitwits in the press bought the whole story and ran with it."

Fake steve proceeds to denigrate everyone involved in the investigation. When that doesn't work he finds a scapegoat, and throws a trusted associate under a bus.  When the scapegoat flips to become a government witness fake steve's first  instinct is to have him killed.

The link between legitimacy and law compliance raises questions as to what, if any, responsibility corporate scholars bear for the degree of disrespect for corporate regulation that seems to have persisted in Sarbanes-Oxley's wake.  Robert Prentice and Jay Brown, among others, have pointed out the corroding effects that academic attacks on Sarbanes-Oxley as "quack corporate governance" or a "debacle" may have on the general level of respect for corporate laws.  These vehement academic attacks when taken to their logical extreme help make the scene from oPtion$, in which Senator Sarbanes and Representative Oxley are burned in effigy, appear to be a legitimate political protest.

Posted by Renee Jones on December 4, 2007 at 03:16 PM in oPtion$ Book Club | Permalink

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Tracked on Dec 16, 2007 10:24:06 PM

Comments

So I suppose you would be willing to advocate censorship of anti-war commentary as well.

Posted by: Fat Man | Dec 16, 2007 11:58:34 PM

Oh man. Where to start with this.
The beauty of Option$, is that it is written by somebody who seems to know business- from the INSIDE. Fake Steve's reactions to the options backdating investigations are absolutely on point. He reacted like everybody who is really in business reacts. Only those that know nothing about business, and have never granted employee options, feel that this is a scandal. Note that Apple and other companies are being called on their EMPLOYEE options plans, not executive plans at all. Renee- are you aware, that employee stock options have been backdated to the low price within the quarter, prior to closing the books, by all companies who had employee options, since the 70s or maybe before? Did you know that Steve Jobs personally chose the low strike price within the quarter, prior to closing the books, for all new hires who joined Apple up until 1985 when he was fired? This is not a new practice, and nobody thought it was wrong. I'm still not sure it is. All quarterly expenses have leeway for dates that occur within that quarter. When you tally up depreciation, it is typically dated to the close of your books for that quarter- not the actual day and minute within that quarter that you took your depreciation tally. Stock options for employees are like that. You have hundreds of employees starting within a quarter, do you grant options 300x per year to correspond with each hire day? of course not. One day in the quarter is chosen and everybody gets that date. That is what employee options backdating is all about, a day is chosen within the quarter and paperwork is dated with that day. BIG DEAL. You don't like this practice that Microsoft, IBM, Intel, literally every company that has ever granted employee options has engaged for 40 years? Fine, its over now, options are expensed. Nobody cares now that options are expensed either. Does it make the "corporate governance hawks" feel important now that they have stopped such a trivial practice that existed only to save paperwork? By the time these corporate governance hawks get done with US business, every CEO will be locked up for something nobody can quite figure out. The fact that criminal trials are being held against CEOs with *no benefit to the accused* says it all right there.

Posted by: BRT1 | Dec 18, 2007 12:07:25 AM

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