CalPERS Asks ACS to Investigate Stock Option Issues
6/12/2006 Source of Title
Reprinted with permission
The California Public Employees' Retirement
System (CalPERS) has asked Affiliated Computer Services of Dallas, Texas and
24 other companies to respond to questions about published media allegations
of stock option backdating practices for top executives.
The U.S. Securities and Exchange Commission is investigating the practice,
which allows executives to backdate stock purchase options to secure the
lowest possible market price, thereby maximizing their potential profits
regardless of performance.
CalPERS asked the companies to independently investigate media reports of
employee stock option backdating and disclose all findings publicly. It
further requests development and public disclosure in financial and proxy
statements of any new Board of Directors’ policies for determining option
"Stock-option backdating potentially threatens the credibility, governance
and performance of companies," said Russell Read, the
chief-investment-officer of CalPERS. "We hope the SEC will continue to
investigate because it imperils the creation and sustainability of long-term
value for shareowners."
The other companies that have asked to investigate their practices are:
Altera Corporation, American Tower, Analog Devices, Brooks Automation,
Caremark, Comverse Technology, F5 Networks Inc., Jabil Circuit Inc.,
KLA-Tencor Corp., Maxim Integrated Products, McAfee, Meade Instruments,
Medarex Inc., Nvidia Corp., Openwave Systems, Power Integrations Inc., RSA
Security, Safenet Inc., Semtech Corp., Sepracor Inc., Sycamore Networks,
Trident Microsystems, UnitedHealth Group, and Vitesse Semiconductor.
"These allegations raise concerns about a lack of oversight by the Board of
Directors, weak internal controls, weak internal and external audit
practices, and poor accounting – as well as the possibility of civil and
criminal penalties against these companies," said Christianna Wood, the
senior investment officer for Global Equity and author of the letters.
CalPERS asked the companies to adopt strong audit policies with
board-approved directives on executive compensation; to refrain from using
company resources to cover any tax or legal liability for executives
implicated for wrongdoing in options backdating; to commit to having
shareowners annually ratify external auditors; and, to take steps to make
sure that board, committee, and individual director evaluations include
substantial and meaningful oversight by individual directors and the Board
of Directors as a whole.