Exploring Corporate Governance Around the World

By Allison Garrett, Senior Vice President for Academic Affairs at Oklahoma Christian University

Wednesday, July 26, 2006

Options Backdating and D&O Insurance

As I've said in prior posts, the cheapest form of D&O insurance is good disclosure. Companies that have engaged in backdating and other options shenanigans may learn that lesson the hard way as insurers seek to deny coverage.

CFO.com has a good article about the D&O insurance consequences of backdating here. The 80 or so companies currently being investigated by the SEC are likely to find their insurance companies revisiting the representations made by those companies in applying for coverage. Also of concern for insurers is the amount of legal fees that these companies will run up during the investigations and any subsequent litigation. After all, the law firms handling these types of issues tend to be silk stocking firms that are very expensive.

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