Might there be some interlocking threads among the 120 or so companies being investigated for backdating stock options? Well, it turns out that more than 40 percent of the companies have common directors, according to a study by the Corporate Library, a research firm that specializes in governance issues. Among the connections cited is James Johnson, a director at UnitedHealth Group Inc. since 1993 and a member of that company's compensation committee since 2003, who is also a director at L.A.-based KB Home. As faithful LABO readers know, stock options given to KB Chairman Bruce Karatz worth many millions of dollars are under scrutiny.
Just as a reminder, options give a recipient the right to purchase stock at a set price. Backdated stock options are dated back to a time when the stock price is lower so that the profit is higher after the options are exercised. Or put another way, it's cheating. The Karatz-Johnson connection is noteworthy because stock options granted to CEO William McGuire (and presumably signed off by Johnson) were almost certainly repriced. The day that an independent panel announced that conclusion, McGuire stepped down. A spokesman for Johnson said everything he did has been on the up and up. But former SEC official Lynn Turner told Bloomberg News: "The closely knit network of directors for these companies smells of good old boy cronyism directly facilitating the interests of the CEOs rather than investors."