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Why I Did Not Go To Jail

bhorowitz.com

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Re: Why I Did Not Go To Jail

#31

Post by chollida1 »

jey wrote: post #25
cperciva wrote: post #16

First, when we started the company, Marc and I agreed that the company’s General Counsel would always report directly to me. This is different than in many technology companies where the General Counsel reports to the Chief Financial Officer. This needs to be in bold 72-point font. Corporate behaviour aligns with corporate structure, and if the General Counsel is subordinate to the Chief Financial Officer, complying…

What's the supposed rationale for the General Counsel reporting to the CFO in the first place? Isn't a General Counsel supposed to be "general" and not only concerned with financial issues?

Just the way the corporate org chart is drawn up.

Some companies have every C level executive reporting to the CEO.

Some CEO's are big picture people and focus on external issues. This means that the company would usually have most functions reporting to the COO.

Sometimes it just makes sense to have a group report to an executive. Consider Groupon, its largest expense is marketing so it might make sense to have the Chief Marketing officer report to the CFO. It can also make sense for financial companies to have the Counsel report to the CFO as they would be doing primarily financial related duties, like compliance.

General Counsel is a special case as its a bit of an oddball case for companies where its not a core function and will often report to the COO.

IT can often be like the general counsel where it's not viewed as a core function or PnL center and thus report to another C level executive like the CFO or COO.

Re: Why I Did Not Go To Jail

#32

Post by pitnips »

jey wrote: post #25
cperciva wrote: post #16

First, when we started the company, Marc and I agreed that the company’s General Counsel would always report directly to me. This is different than in many technology companies where the General Counsel reports to the Chief Financial Officer. This needs to be in bold 72-point font. Corporate behaviour aligns with corporate structure, and if the General Counsel is subordinate to the Chief Financial Officer, complying…

What's the supposed rationale for the General Counsel reporting to the CFO in the first place? Isn't a General Counsel supposed to be "general" and not only concerned with financial issues?

There's really no good reasoning. Though many companies may do this, MOST (by far) companies do not.

Re: Why I Did Not Go To Jail

#33

Post by enjo »

timmclean wrote: post #29

> Why I did not go to jail Summary: I ran an accounting decision that worried me past my excellent lawyer. This makes me wonder, as someone with little legal experience, how can we find lawyers who are truly great at what they do?

This, more than anything else, is why every entrepreneur needs a great mentor.

Re: Why I Did Not Go To Jail

#35

Post by bradleyjg »

cperciva wrote: post #16

First, when we started the company, Marc and I agreed that the company’s General Counsel would always report directly to me. This is different than in many technology companies where the General Counsel reports to the Chief Financial Officer. This needs to be in bold 72-point font. Corporate behaviour aligns with corporate structure, and if the General Counsel is subordinate to the Chief Financial Officer, complying…

For companies covered by Sarbanes-Oxley there are circumstances where the General Counsel is legally required to escalate an issue to the board of directors, or a subcommittee of it. That's going to be difficult and awkward if he normally reports to the CEO. So while there are pros and cons to a plural versus unitary executive, at least for public companies, it makes a lot of sense to have the GC report to the board or a specific committee.

Re: Why I Did Not Go To Jail

#36

Post by ironchef »

jey wrote: post #25
cperciva wrote: post #16

First, when we started the company, Marc and I agreed that the company’s General Counsel would always report directly to me. This is different than in many technology companies where the General Counsel reports to the Chief Financial Officer. This needs to be in bold 72-point font. Corporate behaviour aligns with corporate structure, and if the General Counsel is subordinate to the Chief Financial Officer, complying…

What's the supposed rationale for the General Counsel reporting to the CFO in the first place? Isn't a General Counsel supposed to be "general" and not only concerned with financial issues?

For a lot of tech companies the primary area of responsibility of the general counsel is compliance reporting management (which is very closely aligned with CFO office). Outside of tech, there's often a lot more public policy work and critical incident management (which is why I often see them reporting through CEO outside of tech).

Re: Why I Did Not Go To Jail

#37

Post by metaphorm »

jey wrote: post #25
cperciva wrote: post #16

First, when we started the company, Marc and I agreed that the company’s General Counsel would always report directly to me. This is different than in many technology companies where the General Counsel reports to the Chief Financial Officer. This needs to be in bold 72-point font. Corporate behaviour aligns with corporate structure, and if the General Counsel is subordinate to the Chief Financial Officer, complying…

What's the supposed rationale for the General Counsel reporting to the CFO in the first place? Isn't a General Counsel supposed to be "general" and not only concerned with financial issues?

that rationale is that obeying the law is a financial decision rather than a moral decision. if the (money) price of breaking the law is less than the profit made by breaking the law, then the CFO will decide to do it.

this is THE classic example of corporate sociopathy. unfortunately its still the way a lot of companies do business.

Re: Why I Did Not Go To Jail

#39

Post by jsonne »

bfe wrote: post #30
Nicholas_C wrote: post #19

Earlier quoted context omitted.

>Always do and trust own analysis (with an attorney or expert you trust when needed) instead of falling for the lure of "it's fine with these other experts so it should be fine for us." I think the problem arises when you're a CEO/Executive of a company and don't have time to do this yourself.

If someone doesn't have time to make sure the company has a legally compliant options policy, they don't have time to be the CEO.

I pretty adamantly disagree. A CEO is a specialized role just like any other. I wouldn't expect a developer to know the ins and outs of financial compliance, and the same holds for a CEO and specific compliance rules.

Re: Why I Did Not Go To Jail

#40

Post by dctoedt »

1. Backdating stock options per se is not what's the legal problem -- it's that failing to account correctly for the resulting compensation charges ("comp charges") can result in materially-false filings with the SEC.

2. It's a different problem as far as the internal politics are concerned. When a company properly records such comp charges in its financial statements, can depress a company's financial results and with it the stock price. Hence, there's an incentive to avoid recording such charges if at all possible.

3. Now consider the interest groups / constituencies and their incentives:

+ Employees, sometimes vociferously, want the lowest strike prices they can get for their stock options -- that can be especially true for executives who have big grants -- and they want the stock price to be as high as possible (hence they're not wild about recording comp charges).

+ Board members would like to keep employees happy, especially executives, and of course themselves and their fellow board members, if they can. Issuing options with an in-the-money strike price can often appear to be a cost-free way of promoting general happiness.

+ On the other hand, the constituencies that have a strong interest in strict legal compliance -- mainly the law and finance departments -- are often weaker politically than the ones who want the low strike price and the high stock price.

As a result, there can be a lot of subtle pressure on a CFO. Employees and even senior executives can say, "look, doing this in-the-money option grant, without recording a comp charge, is OK with our audit firm and with our outside counsel --- what's your problem? Why shouldn't we rely on them?"

(The unstated subtext being, they're the experts, not you, and we like their answer better than yours.)

Finally, let's not forget that outside accounting- and law firms are motivated to keep their clients happy, to be perceived as team players, and ultimately to get hired for repeat business. They definitely have incentives to tell clients what they want to hear if they can possibly do so. Stir in the fact that when these professionals can come up with "creative" ways to make their clients happy, they gain in reputation with other potential clients and with their professional peers.

All this means that the company's senior executives and its compensation and audit committees need to be willing and able to stand up to the pressures the other way. That's been made easier by the news reports of people going to jail and being permanently barred from serving as officers or directors of public companies.

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