Image credit: dbking

Does one really have to be an accountant, lawyer, minister or whatever expert in order to recognize when something is likely illegal or, at the least, unethical?

“That’s not my area of expertise” is the excuse du jour on most of the financial games being played—especially option backdating.

I find it very amusing when I hear high-powered corporate CEOs explaining that they don’t have the financial or legal savvy to understand that backdating is a no-no.

In one high profile case dating back to 2006 involves Dr. William McGuire, former CEO of UnitedHealth Group, who “…relied on others to assess the legality and appropriateness of backdated stock options granted to top executives and new hires. As such, all allegations against him in a shareholder’s lawsuit should be dropped.”

I love this part, “Dr. McGuire has no formal training or degrees in finance, accounting or law,” the brief states. “His only professional training is as a medical doctor with a specialty in pulmonology.”

Maybe no formal training, but please! There’s no way he was hired to run one of the largest health-care companies in the country without good business knowledge and skills.

No formal training, but didn’t he read or listen to the news? The backdating went on for 12 years and there certainly were news stories of other companies that got in trouble doing it during that time. The cost? $1.56 billion downward restatement of earnings.

But it’s the Cablevision case that really cracks me up.

“Cablevision had awarded 400,000 stock options to a deceased vice chairman, while making it appear as though the options had been granted prior to his 1999 death.”

Cablevision just settled, “…terms of the settlement agreement, certain present and former Cablevision directors and execs will pay Cablevision $24.4 million, while Cablevision’s liability insurer will kick in another $10 million. Cablevision has also agreed to adopt a number of corporate governance changes relating to stock-based compensation awards.”

Who said that greed ends with death?

(To learn why I chose this picture just click it and read.)

Heard any good corporate greed stories lately?

As long-time readers know, I have a rabid interest in all things corporate culture.I especially like stories about the bleeding edge of corporate culture where radical new stuff is tried and those about entrepreneurs who lose their corporate culture as they grow, figure out what went wrong and do it differently the next time.

When those two interests merge I really get excited. Here’s the story.

Reed Hastings founded Pure Software in the Nineties and several mergers later became part of IBM. ‘Hastings says Pure, like many other outfits, went from being a heat-filled, everybody-wants-to-be-here place to a dronish, when-does-the-day-end sausage factory.’We got more bureaucratic as we grew.”

Hastings was wealthy, but not happy. So he took two years off and did some deep thinking so that ‘his next endeavor wouldn’t suffer the same big-company creep.’

Now comes Netflix, where Hastings’ personnel policies are as revolutionary as his business model.

‘Hastings pays his people lavishly, gives them unlimited vacations, and lets them structure their own compensation packages. In return, he expects ultra-high performance. His 400 salaried employees are expected to do the jobs of three or four people. Netflix is no frat party with beer bashes and foosball tables. Nor does the company want to play cruise director to its employees. Rather, Netflix is a tough, fulfilling, ‘fully formed adult’ culture, says marketing manager Heather McIlhany. ‘There’s no place to hide at Netflix.”

Netflix is 180 degrees away from a mentality I detest—that of ‘paying just enough to attract talent but not a dollar more than they need to.’

Generally, people will give you what you expect, because your expectations color or taint your attitude and there’s no way to hide that. Even without Netflix-style perks you can build a high-performance culture by treating your people as adults.

What are your expectations?

I’m sure many of you saw the story abut the escalating talent war between Vmware and Google,“Trip Chowdhry, an analyst at Global Equities Research, estimated that Palo Alto, California-based VMware is paying $130,000 to $160,000, plus stock options –compensation that only Google can match, he said.

The programmers I know say that most offers are still tied closely to industry averages and that no one “wants to see the craziness of the ’90’s again”—except, of course, the programmers who are getting those salaries and the ones who feel they should be.

But many managers will still blow their in-house salary curves and start throwing in sign-on bonuses and other perks when chasing talent, totally ignoring the proven adage that “people who join you just for money and stock, will leave you for more money and stock.”

When the talent market gets tight is the time to remember that the best performers didn’t necessarily

• have the best grades;
• attend a prestigious school;
• work for your competitor or
• even in your industry;
• have a full head of hair that has no gray; or
• fits easily into your comfort zone.

This is the time when your hiring skill really matters; when your ability to recognize jewels where others see only lumps of coal.

Real loyalty can’t be bought with either money or stock options, it’s earned through your actions, your willingness to take a chance, to provide the place where the coal has the opportunity to become a diamond.

A candidate recently posed a question on Startupping asking if a company should share its valuation when offering shares.

After 20+ years recruiting for startups, another nine consulting/coaching startup CEOs, including a specific approach to giving out stock options, and, shortly, releasing a software program based on our option allocation methodology, I really wanted to grab the execs in that company and shake them. But if I shook every exec who wonders if they really have to tell, I wouldn’t have time to do anything else.

But just to be sure, I asked a serial entrepreneur I know what he thought and here’s his answer.

“Well, I suppose it’s not actually illegal to refuse to disclose facts about your stock plan to a candidate. It’s kind of stupid, like saying, “we can’t tell you what we are going to pay you when you join, but it’s going to be reasonable.” Who would accept that as an offer? Questions about the size of the total stock pool, the valuation of the company, the current option price and the percentage that the candidate’s initial option represents of the total stock are all fair and realistic questions that a good candidate would ask, and if the company refuses to answer them, I think the candidate should immediately get the idea that there’s something screwy with the management of the company.”

That’s really the crux of the matter. Essentially, the company is saying, “We want you to work for us, but we don’t trust you, nor do we consider our business any of your business.”

Whoee, is that an attitude to impress a candidate or what? Wouldn’t you just love to work for someone who asks for, but gives not?

Further, having staffed for startups, I know that the last thing you need is a high level of naiveté. If your candidates don’t ask about valuation it’s up to you to explain it anyway—and keep explaining until they truly understand—because if they don’t understand they have no reason to bust their buns at the level required in a startup.

Whether this company’s response was due to ignorance or information control issues it’s a very likely harbinger of their MAP and its resulting culture.