Exploring Corporate Governance Around the World

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

Wednesday, August 02, 2006

French Options Law

The ISS blog has a story this morning about a proposed new stock options law in France. See http://blog.issproxy.com/2006/08/support_for_french_option_law.html. The proposed law would prohibit executives from exercising their options while in office. Next year is a presidential election year, and there have been high-profile exercises resulting in large profits for certain French executives. In one instance, according to the ISS blog, an executive exercised just one week before his company issued a profit warning.

The proposed legislation seems to take a blunderbuss approach to the stock options issue. After all, the easier approach is simply to allow the shareholders to do what shareholders do. That is, vote directors responsible for granting outrageous numbers of options out of office.

And, as to executives who may exercise options just in advance of a profit warning, insider trading laws should take care of that. Executives who hold options should start thinking about exercising them well in advance of the date they terminate. Otherwise, the executives run the risk that the options will terminate at a time when the executive is in possession of material non-public information.

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