So You Want to Piss People Off?

Well, Brocade Communications (Nasdaq: BRCD  ) has done just that. The company has treated shareholders to a decline in the value of their stock from an adjusted $118 at the peak 10 years ago to $5 per share today. And if that weren't enough, add to it the recent sentencing of former CEO Greg Reyes to 18 months in jail for options backdating.

There now appears to be a major PR initiative across the Internet to convince every reader that Greg Reyes is a great guy. Everywhere I click, I'm told to remember the many philanthropic contributions he's made. I don't know Greg Reyes, and I do suspect he's too much the fall guy for a lot of foul play in options granting -- particularly in Silicon Valley over the past 15 years.

But let's be real. That's no small comfort to the outside shareholders, who are every bit as important as the customers and the employees of a firm. Funny thing, though, that when options granting picks up pace, shareholders seem to be forgotten. The more I have watched this compensation vehicle driven through hundreds of companies, the clearer it is to me that Warren Buffett has it right at Berkshire Hathaway.

I oppose the granting of stock options to any employee at any firm in any industry. Call me a curmudgeon. Say I'm out of touch. But what options have brought to the marketplace is a greater complexity to accounting, a greater obfuscation of the true costs of running a business, and legal and reputational damage to otherwise high-performing companies like Apple, Dell, Broadcom, and United Health (NYSE: UNH  ) .

Why shouldn't these businesses simple pay their colleagues top dollar and then invite them to purchase shares like any other buyer in the marketplace?

To me, the fact that any executive like Greg Reyes would kindheartedly advocate for their fellow employees by over sizing or falsely accelerating options grants is just reprehensible.

Fool co-founder Tom Gardner does not own shares of any companies mentioned. Berkshire Hathaway and UnitedHealth Group are Motley Fool Inside Value recommendations. Apple, Berkshire Hathaway, and UnitedHealth Group are Motley Fool Stock Advisor choices. The Fool owns shares of Berkshire Hathaway and UnitedHealth Group. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On July 22, 2010, at 11:40 PM, thawkeye wrote:

    Very well stated. Crooks by any other name; CEO, CFO, President, Chairman, etc etc... are still crooks.

  • Report this Comment On July 26, 2010, at 2:05 PM, gp94403 wrote:

    This piece is indicative of the oversimplification of complex matters by most media outlets. This case was hardly as black-and-white as you portray it.

    I'd like to bring up some pertinent points that you left out.

    1) What about the run of the stock up from below $10 bucks to $118? Shouldn't have investors cheered about that? How many shareholders made a boatload of profit on that performance? If someone bought at the top and is still holding, that's their problem.

    2) What Greg Reyes was convicted of was not a crime at the time. In fact, granting stock options was done universally in Silicon Valley. Can you imagine being a CEO at that time and trying to compete for the best talent and not offer options? You would not be able to compete. You would have gotten the dregs of the industry. Can you imagine trying to defend your actions to the board of directors? To pretend otherwise is naive and self-serving.

    3) Greg Reyes did not enrich himself 1 penny with the options granting. So, who did he harm? What was his crime?

    4) Sometimes juries make bad decisions. His first conviction was vacated due to prosecutorial misconduct (aka the government LIED in their efforts to convict him). Let's remember that governments are powerful and can do just about anything they want. And they have the muscle to do it.

    5) Double standards exist. Why was Reyes singled out for prosecution? Why was Apple allowed to conduct an internal investigation? Why not go after all the companies in Silicon Valley? If you are concerned with justice wouldn't that be the right thing to do?

    5) Don't be so quick to dismiss Greg Reyes' philanthropy. The things he has done publicly as well as anonymously would make a skeptic like you reconsider your remarks.

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