WSJ Business Columnist's Logical Lapse

Holman W. Jenkins Jr., who writes the Business World column in the Wall Street Journal, is one of the more predictable of pundits there — entirely on the side of business people when it comes to their innate right to do just about anything they please.

Today, however, he channels a common refrain in defending corporate executives in their shameful practice of backdating stock options. In this case, writing about Broadcom’s founder and CEO, Henry Nicholas, he says:

Mr. Nicholas did not benefit from any backdated stock options. He was Broadcom’s largest shareholder, thus had no natural or unnatural interest in overpaying employees with backdated stock options. What’s more, Ernst & Young, the company’s outside auditor, appears to have blessed the accounting in full knowledge that option grant dates had been assigned retrospectively to make sure employee options had the intended value.

As I said in a column last fall in PR Week magazine, this is bull:

Let’s leave aside for the moment the fact that the backdating is flagrant dishonesty when not disclosed to shareholders (and that was the norm). Companies have had to restate billions of dollars in lower earnings to account for their lies.

In cases where executives did not personally have any of their own options backdated, the reasons cited for the backdating are pretty much the same: Everyone did it, because it was necessary to recruit and reward employees, and thereby make the company better, which was good for shareholders.

Well, then, so much for the no-personal-benefit garbage, unless somehow the executives’ interests are independent from what their employees’ interests. They’re not.

If backdating options – a procedure that would be legal, if still somewhat sleazy, if disclosed at the time – was beneficial for the company, it was by definition beneficial for the executives.

“Much of CEOs’ bonus pay is tied to reported earnings,” noted Jesse Fried, a law professor at the University of California, Berkeley, in an op-ed column last year in the San Jose Mercury News. “So is the price at which executives can unload their stock. The firm-wide back-dating of options jacked up earnings, and the amounts involved were not trivial.”

This has been true since the backdating scandal broke. Why, then, are journalists still being stenographers for the spinners who recite the “didn’t personally benefit” mantra, as if it was the other side of an issue that has two legitimate points of view?

Perhaps the topic is too arcane — but arcane to the Wall Street Journal’s senior business columnist? Right.

Or perhaps it’s just journalistic laziness. Not in this case, either; Jenkins obviously spent some time learning the facts of the situation.

Maybe, as I’d guess in this case, it’s the journalist’s belief that options backdating is simply not a problem. He’s clear enough about that. But he should have the journalistic integrity to acknowledge that Nicholas did indeed benefit from the backdating.

Look, this is simple: If it’s good for your employees, and if your pay depends on their work or you own a substantial part of the company’s stock, it’s also to your benefit. That isn’t rocket science. It’s basic logic. Journalists shouldn’t let executives and their spinners — and Jenkins is clearly one of the latter group — get away with flouting it.