April 19, 2006

Man bites dog

Could this be the start of a trend?

"William W. McGuire, the chairman and chief executive of the UnitedHealth Group, said on Tuesday that he had asked his board to stop awarding new stock options to senior executives."

Some critics have alleged this was done to allay concerns about back-dating of previous option grants. Regardless, it wouldn't be the first time the right thing was done for the wrong reason.

When I am interviewed about Bigger Isn't Always Better, I'm often asked why so many companies pursue uneconomic bigness strategies, especially those involving unwise acquisitions.

My one-word answer: stock options.

The more you dig into the kinds of behaviors encouraged by ongoing grants of large amounts of options, the clearer it is that they disalign the interests of the executives receiving them from the average shareholder.


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