Who are the criminals?

Compared with the enormities of legal executive pay, options backdating is a side issue.

Last week, I had the pleasure of spending the a day with the parents of former Comverse CEO Jacob (Kobi) Alexander. Zvi Alexander, Kobis father, had read my column Backdating Buck, and he wanted to thank me for defending Kobi.

Kobi Alexander is currently fighting extradition to the US from Namibia on fraud charges stemming from the illegal backdating of options.

When Kobi Alexanders name was mentioned last week, people responded Due to his stealing, Comverse employees are being laid off today.

I started to wonder if Kobi Alexander was the only responsible party here or whether the toothless SEC and the lawmakers who enacted the ineffective laws were also partially responsible.

Shareholders in Comverse have been well rewarded. Since the company's IPO, they have gained $4 for every $1 invested. This does not include their stakes in the spin offs from Comverse. The shareholders in Verint have more than doubled their money since the IPO in 2002. Ulticom shareholders have lost 60% of their money. The Comverse subsidiary Starhome will eventually find a home on Nasdaq, and most likely earn a nice return for Comverse shareholders.

In measuring the performance of Alexanders companies, we need to remember the telecom tsumani of the early 2000s. The shareholders of Global Crossing and Worldcom suffered bankruptcies even while Global Crossings founder Gary Winnick amassed a billion dollar fortune. Lucent survived but is barely hanging on.

Mr. Bumble in Charles Dickens Oliver Twist said it best. The law is a ass - a idiot. Kobi Alexander built a company with over 6,000 employees and created value for his shareholders, but he is still considered a thief and could be on his way to jail. Others that have destroyed shareholder value or enjoyed over the top compensation are not in the governments cross hairs.

At one time, Taro stock sold at more than $68. Dr. Barrie Levitt, CEO of Taro Pharmaceuticals, refused many offers to sell the company at significantly higher prices. Under his leadership, the company did not complete required financial filings, causing the NASDAQ to delist the stock. He was able to destroy shareholder value with impunity. Since he had no choice due to imminent bankruptcy, Levitt has finally agreed to sell at the rock bottom price of $7.75. Yet Dr. Levitt is not facing jail and is free to drink Mai Tais on the beach. Large shareholder Franklin Resources is not happy about it.

Despite Yahoos dismal performance on the stock market over the last three years and its 35% decline this year, CEO Terry Semel was paid over $100 million, including an award of 6.8 million stock options. This makes him one of Americas highest paid executives. Even though one third of the stockholders voted against this award, it is legal under the current laws.

Robert Nardelli, former CEO of Home Depot, walked away with a $210 million dollar severance package. In the six years that he was at the helm, the stock did not move. Michael Ovitz golden parachuted away from Disney after a year with a $140 million. Graef Crystal, well known executive compensation critic, entitled his piece on the subject, Michael Ovitz Got Away with Murder and I helped him.

For the year 2001, Kobi Alexander earned total cash compensation of $9, 401,242 and was awarded 600,000 in stock options. In 2002, he earned $1,719,039 and was granted 600, 000 stock options. In 2003, he earned a total of $9,116,254 -$1,325, 720 in cash and 1,937,999 options. In 2005, his total compensation was $9,122,907.

By Semel, Nardelli, and Ovitzs standards, Alexanders compensation was positively miserly. It is 1/10 of Semels annual salary. According to Executive Paycheck, Alexanders totals ranked in the 93th lowest percentile for executive compensation for the years 2001 -2003.

So why then is Alexander the only one of these CEOs that is in trouble? When you are stealing from shareholders, there are only three rules to follow if you do not want to take a government mandated vacation. They are, in order: disclose, disclose disclose. The SEC does not care how much an executive of a public company pays himself or herself. They have no regulatory power to challenge outsized compensation. Their only concern is the proper disclosure of this information.

Shareholders have a right to be angry at the behavior of the trio of Comverse executives: Alexander, CFO David Kreinberg, and General Counsel William Sorin. Laws, even stupid laws, have to be obeyed until they can be overturned. Shareholders do have a right to know. It is their company after all.

The executives reckless actions left the company temporarily rudderless and decimated shareholder value. Even worse, there was no need for the illegal actions. In this overheated CEO salary marketplace, Alexander could have probably paid himself whatever he wanted.

Kobi Alexander is currently facing more than 25 years in jail. John Walker Lindh, the American who aided the Taliban in Afghanistan, received 20 years. Whatever you think of Kobis crime, he did not commit treason. He is also not the poster boy for greed in the C-suite or the Paris Hilton of CEOs.

The SEC and lawmakers are not entirely blameless and should also be seeking absolution from shareholders. They have allowed the wages and perks of executive to rise unchecked. The bureaucrats and legislators stand around fretting, wringing their hands, and muttering What can we do?

They need to reevaluate existing laws and enact laws that make sense. If someone with the stature and sparkling clean reputation of former GE CEO Jack Welch can get caught up in an SEC investigation for non-disclosure, then the laws are too complicated.

Criminalizing backdating of options makes for good headlines and launches political careers. Has it really helped the constituency that it was designed to protect? The employees of Comverse are being laid off. The share price still has not recovered from the scandal.

If Kobi Alexander goes to jail, I hope that his cell is big enough to accommodate all the guilty parties.

Laura Goldman is an independent commentator. Her views do not necessarily reflect those of "Globes".

Published by Globes [online], Israel business news - www.globes.co.il - on June 18, 2007

Copyright of Globes Publisher Itonut (1983) Ltd. 2007

 
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