Corporate Governance - Ethics

Abstract

This paper examines the ethical issue of corporate governance which is backdating of stock options. In order to retain talented corporate executives, large firms provide them stock option to maintain their interest in the organizational goal accomplishments. However, ethical issues arise in relation to executives taking advantage of the information which they get prior to the actual date of stock options. This act is not illegal for organizations to provide stock option, but a legal framework has to be placed to maintain conflict of interest.

Abstractii

Introduction1

Analysis1

Ethical and legal issues2

Control measures for ethical issue3

Conclusion3

Corporate Governance - Ethics

Introduction

This article discusses stock option backdating, agency problems, ethical implications and highlights the corporate governance ethical scandals of US firms. Stock option backdating is defined as setting a date for employee stock option before the actual date. It is not illegal but creates ethical issues if the information is disclosed prior to date and conflict of interest among the corporate executives could arise (Adam & Schwartz, 2009, p.225). The role of management is to maintain transparency, accountability and ethical responsibility in these executives to ensure that they do not take advantage of stock option.

Analysis

Two largest US Corporations, Enron and WorldCom, were challenged with ethical corporate governance issues which became the reason for their downfall. The ethical scandals of these Corporations made other firms to change their regulatory mechanism and ensuring compliance with Sarbanes Oxley Act 2002. The financial losses which Enron and WorldCom faced were because of unethical accounts reporting practices adopted by their executives to gain the advantage from the soaring stock prices (Adam & Schwartz, 2009, p.225).

In the theory of corporate governance, backdating stock option is the part of executive remuneration to protect the interests of investors which can be easily manipulated by the executives. To maintain and monitor the ethical behavior ...