Editor’s Note: Today’s Sunday Arts installment excerpts a post from my very earliest days of blogging. The May 25, 2006 post (here) appeared in a separate and now defunct blog called And Furthermore that I then maintained in parallel with what was then and remains now my principal blog, The D&O Diary.
One of the more interesting stories in the financial pages these days is the news surrounding the options backdating probes. As the options backdating story has continued to unfold, some have questioned whether or not there is actually anything wrong with options backdating. For example, the wsj.com law blog has a May 23, 2006 video post containing a debate between a business school prof and a CNBC reporter on the topic. Options backdating is obviously not harmless — the revelation of options backdating has already proven damaging to at least some of the companies caught up in the probe as they have had to restate their past financials to reflect their true compensation costs. But even beyond the restatement threat, there is a particular reason why the options backdating story has gained momentum in a way that stories about executives’ use of corporate aircraft or gold-plated pensions have not.
The peculiar feature of the options backdating scandal is captured in the following epigramatic statement of Talleyrand:
If a gentleman commits follies, if he keeps mistresses, if he treats his wife badly, even if he is guilty of serious injustices toward his friends, he will be blamed, no doubt, but if he is rich, powerful, and intelligent, society will still treat him with indulgence. But if that man cheats at cards he will be immediately banished from decent society and never forgiven.
The whole point of options-based compensation is to align executives’ financial interests with those of investors. Options-based compensation should subject executives to the same investment risk as investors face. But backdating options enables executives to gain in a way that investors cannot; this not only breaks the alignment between executives’ interests and those of investors, it unfairly stacks the deck in the executives’ favor. It is, in Talleyrand’s memorable phrase, cheating at cards, which no one will ever forgive. I believes the options backdating story has legs and has a long way to run.
Talleyrand made the statement above to Napoleon Bonaparte to reproach Napoleon for his treachery in tricking King Charles IV and Queen Marie Luisa, the Bourbon monarchs of Spain, to abdicate their thrones in favor of Napoleon’s brother Joseph. The incident not only led to a falling out between Napoleon and Talleyrand, but it was the prelude to Napoleon’s disastrous Peninsular War that led to the first of Napoleon’s military defeats at the hands of the Arthur Wellesley, later First Duke of Wellington.
Talleyrand himself may or may not have known about cheating at cards from first-hand knowledge, but he certainly knew about trading in securities. By the time of his death, Talleyrand had accumulated an immense fortune, only a portion of which was attributable to bribes and gratuities he received from foreign governments. A substantial part of his fortune came from his trading in shares of companies based on inside information he obtained from his position inside the Napoleonic government and the Bourbon restoration.
For those interested in Talleyrand, I recommend Duff Cooper’s classic 1932 biography of Talleyrand.
More About Talleyrand: [Editor’s Note: The following is an excerpt from my November 12, 2009 post on this site.] I am in Chicago this week at the PLUS International Conference, where the keynote speaker was none other than Bill Clinton. Let me just say that he though he is now “only” a former President, he retains all of his rhetorical powers. His speech was entertaining, thought-provoking, funny and serious, and impressive.
During the Q&A, one of the questions he was asked is a rather conventional parlor game query: if you could have dinner with any historical figure, who would you choose and why? Perhaps because it was a conventional question, he gave a rather conventional, almost undergraduate-seeking-approval type of answer. And being a politician, he couldn’t name just one person – he named three: Socrates, Jesus, and Genghis Kahn. Clinton had his reason for each of the three.
I will grant you that Genghis Kahn is an interesting answer, but the other two are safe, predictable, and, well, kind of boring. I will stipulate that everyone if they had a chance would want to meet Jesus. Socrates is pretty much in the same category. (Same with Gandhi, Lincoln, Mohammed, and Winston Churchill) So if we all agree that Jesus and Socrates (and Gandhi, Lincoln, Mohammed and Churchill) are not available, which historical figure would you want to have dinner with?
Because Clinton gave himself three choices, I am going to give myself three as well.
First, I would choose Charles Maurice de Talleyrand-Perigord, also known as the Bishop of Autun and the Prince of Benevento. Talleyrand lived through some of the most interesting events in all of human history and somehow not only managed to be involved in them all, but what is perhaps a more impressive feat, to have survived them all. He was involved in the French revolution from the start and even acted as foreign minister to the revolutionary government. He later managed to become a key advisor to Napoleon, until the two men fell out over policy. Ultimately, he became one of the key players in the Bourbon restoration. Though often reviled as unprincipled and cynical, I believe he may have been one of the most interesting people in the grand march of history, and he certainly led one of the most interesting lives.
Second, I would choose Moshe ben Maimon, now known as Maimonides, the Jewish theologian, physician and philosopher. He also lived at an incredibly interesting time, having been born in Islamic Spain in the twelfth century and then fled persecution through Northern Africa. His wisdom, scholarship and knowledge of languages have shaped European thought up until this very day. He was among the first Europeans both to appreciate and advocate Aristotle. His rationalist philosophy would still appeal to most moderns, which to me is a reflection of what an original and powerful thinker he was.
Having chosen two historical figures, I feel I should be a little unconventional with my last choice. So my third selection is John Lennon. He was a radical advocate for peace whose art and originality touched the lives of millions.
A dinner with all three of these persons simultaneously would be chaos. But a dinner with any one of them (language and cultural issues aside) would be fascinating.