THE STOCK option re-pricing scandal has been perturbing corporate America for months but yesterday’s admissions by Apple thrust the issue right to the front of minds all across the globe. Not only is Apple a big name, it also projects an image of cleanliness and decency. If the top brass at Apple thought it was reasonable to re-price options retrospectively to maximise the financial rewards to executives, it suggests that the practice was widespread.

It also suggests that standards of behaviour among executives are woefully low. It simply cannot be right to issue options to buy shares at levels below the market price at the time of grant. If this is not appreciated, it raises questions about all manner of other judgments made by businessmen and women. Besides being intuitively wrong, it makes a mockery of the justification for the schemes. It is good for executives to have shares or share options, so the argument goes, because it aligns the financial interests of shareholders and executives. But if the starting price is revised downwards, directors are getting money for nothing. That does shareholders no good at all.

The episode does Apple no good either. But it is unlikely that the company will be fatally wounded — assuming that the investigations are conducted swiftly and the practices discovered are no worse than has been seen elsewhere. More than 60 companies have been identified as indulging in the scandalous practice of option re-pricing and that means consumer opprobrium will be diffused. It is almost certainly an historic issue too. Codes of conduct have been updated to outlaw option price jigging.

While stock option re-pricing paints corporate America in a dismally poor light, its discovery should leave observers grateful to Sarbanes-Oxley regulations. Sarbox is ritually abused for adding needless bureaucratic burdens on business. The Sarbox inspired obligations on senior executives to sign off accounts, however, seems to have led to the discovery of deplorable practice.

Making directors accountable for the books they keep may result in an extra administrative cost, but if it keeps the custodians of America’s publicly owned companies on the straight and narrow, it is a small price to pay. If it makes all executives re-examine practices blithely assumed to be justifiable, so much the better.

In turbulence

IMAGINE having to put virtually all your annual income into your pension fund to maintain your hoped-for retirement income and then facing an extra petrol bill of £600 million. Unlike the average consumer, British Airways can pass on extra fuel costs in surcharges, but that is not ideal in a market where pricing is cut-throat.

Against that background, bumping up trading profits by a fifth in the spring quarter looks like some achievement for Willie Walsh, BA’s still-new chief executive. The airline, now reduced from being the world’s favourite to being Europe’s third-biggest, has had to sharpen up its marketing.

In the short-haul business BA has competed on price, if not head-on, with the hair-shirt, no frills airlines. It has succeeded well enough to increase the average occupancy ratio on its planes to its highest. In the long-haul trade, it has persuaded more company executives to arrange for themselves to travel club class or first class rather than economy, thereby improving its income per mile.

On the surface, City traders were unconvinced, even dismayed. BA shares fell by fully 3.5 per cent on the day and Goldman Sachs removed the company from its top buy list.

Profit-taking seems to be behind the share price fall. BA shares had risen by more than a third over the past year and by 12 per cent in a month, as news of the surge in revenues filtered out.

But the company faces a series of risks going forward. Trading and fuel issues remain. Talks over pensions start next month and the pay round shortly after. Two senior executives are suspended while the authorities try to find anticompetitive behaviour at the airline.

Mr Walsh has passed muster thus far. But his mettle will continue to be tested.

Safe bet

SO NOW we know the real reason David Carruthers was sacked as chief executive of BetOnSports while languishing in an American jail cell. The heartless move, branded by John Anderson of the rival internet firm 888 Holdings as “absolutely outrageous”, was taken to save the skin of the company. Its lawyers had reasoned that, with Carruthers no longer employed by the company, the Department of Justice would have nobody from the company on US soil to serve legal notices to.

The move certainly wrongfooted the Justice Department, which had previously been able to serve important notices, including a temporary restraining order, on Carruthers. Marty Woelfle, prosecutor in its organised crime and racketeering department, admitted that they should have foreseen the move.

The same factors were at play in BetOnSports’s decision not to send any legal representatives to hear Woelfle outline her department’s case in a Missouri court on Monday. It was advised that since its headquarters were in Costa Rica and its licence in Antigua, it did not have to respond to the charges.

This does not justify the abandonment of Mr Carruthers. It begs the question why BetOnSports is still voluntarily adhering to the main clause of the restraining order and keeping its gambling websites closed to bets from Americans, pushing the company into the red. If it cannot be caught, it may as well continue to trade. Then again, it does not want to goad the US authorities into pursuing alternative courses of action.

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