Educator's Work Exposes Business Scandal
Wednesday, September 20, 2006; 2:46 PM
IOWA CITY, Iowa -- A framed single share of Enron Corp. stock hangs on the wall of University of Iowa finance professor Erik Lie's office. The stock, purchased in 2002 when Enron's value hit rock bottom, features the inscription "Respect. Integrity. Communication. Excellence." That served as the disgraced energy company's corporate slogan.
"It's a good reminder for people who forget," said Lie.
In executive suites across the country, there are plenty of CEOs, financial officers and board members who might like to forget Lie.
From his second floor office at Iowa's Tippie College of Business, Lie spent months analyzing data to demonstrate how companies were illegally and retroactively timing stock option grants to fatten bonuses paid to top executives. His work is widely credited with exposing the latest scandal to rattle corporate America.
"He's uncovered a scandal that has just mushroomed," said Adam C. Pritchard, a former attorney at the Securities and Exchange Commission and now a law professor at the University of Michigan. "He recognized something there that needed looking into. I don't think you can understate what's he's done.
"There would be no issue right now if he had not done this research."
The SEC's chief accountant issued a letter Tuesday giving companies extra guidance on handling and reporting stock option grants, designed to differentiate between companies that granted them in good faith and those that artificially inflated their value.
So far, the SEC, along with the Department of Justice, has launched 82 investigations into companies nationwide over the possible manipulation and illegal reporting of stock option grants.
Investigations have already led to criminal charges against executives from two companies, and many more are conducting their own internal inquiries.
Regulators and academics who study corporate finance and governance say the backdating inquiry could be the most widespread and significant corporate scandal in 30 years.
Lie's work has made him a focus of media attention for months, but he's maintained a modest, reform-minded view.
"When we conduct research, we all want to make an impact," said Lie, who grew up in Norway and taught at the College of William & Mary in Virginia before moving to Iowa City with his wife and two children in 2004. "I'm very happy to see a clear and immediate effect of the research on the corporate world."