Investigations shine light on procedures.

• Author: Marshall, Jeffrey
• Position: Employee stock options

As the ongoing probes into possible stock option backdating intensify, companies are scrambling to understand whether or not they could be under the gun--and those that are have been quick to hire outsiders to help them get a handle on potential damage.

Roman Darmer, an attorney with Howrey LLC in Irvine, Calif., has been involved with a number of option backdating investigations, including one at McAfee, the antivirus software firm. At press time, that probe had already claimed the chief counsel and the president, both of whom were fired, and the CEO, who announced his retirement. (It's worth noting that the company's CFO and chief operating officer, Eric Brown, was being talked about as taking on a larger strategic role as a result of the shakeup.)

While he declined to talk specifically about that investigation, in which a special committee of the McAfee board hired his firm to look into the problem, Darmer says there has been a high concentration of such problems in young, particularly tech-oriented companies in places like Silicon Valley. "You're not seeing these problems in mature, highly regulated industries" where options are set once a year, and perhaps given only to the five top executives, he says. "A huge number of companies won't have problems."

Darmer notes that a host of documents needs to be examined, both paper and electronic: board minutes, agreements, personnel records, stock plan administration records. There are delegation of authority issues, as well, but "there really is no template. It's really fact- and company-specific. Stock administration may be under HR [human resources] or in finance; everyone has different procedures." He adds, however, that "we're seeing similar themes, and the types of things that are being reviewed."

More recently, he notes, the trend in stock option recordkeeping and documentation has been toward...