In a recent report on how law firms are helping clients deal with the option backdating "scandal," the W$J profiled UCLA Law alum Jim Barrall (class of 1975). Jim even got one of those very cool pencil portraits (a long time personal ambition of the management here are PB.com). Barrall, who is chairman of the executive compensation practice at Latham & Watkins, is the founding chair of UCLA Law's Law Firm Challenge and serves on the Dean's Advisory Board. If I were chair of the compensation committee of the board of directors of a company that had been giving out backdated and/or spring-loaded options, I'd want Jim on my team.
The Journal reports:
[Latham & Watkins] held an internal conference call in which it established an options-timing working group. In June, Latham held a firmwide seminar on options timing, with topics ranging from SEC enforcement to tax implications to insurance for directors and officers. Now, the group, more than 80 lawyers strong, receives daily emails and has set up an internal Web site to track options-timing issues as they evolve.
Whether the date on a stock-option grant is the actual date on which the grant occurred may not seem, at first blush, to be a thorny legal question. But "as you peel back the layers of the onion, what you find is that this gets extraordinarily complicated and cuts across many specialties in the legal field," says Robert Cleary, a white-collar defense lawyer at Proskauer Rose and a former U.S. attorney in New Jersey.
Take the tax implications of a backdated option, which could constitute "nonqualified deferred compensation" and expose option recipients to additional tax liabilities and penalties if the options aren't amended by year end. Or, in the realm of directors and officers insurance, lawyers are examining whether an insurer can argue that misconduct by a single director or executive in granting or dating stock options can justify refusing to honor coverage for all of the other directors and officers who were involved in making the grant even if they didn't participate in the misconduct.
Many companies ensnared by the scandal have assigned the audit committees of their boards to conduct independent investigations into their stock-option practices or have formed special board committees to carry out the inquiries. Those committees often retain independent law firms, separate from the company's traditional outside law firm, to conduct the investigations.
