Avoiding another Nacchio

The U.S. Supreme Court may review the Curious Case of Joe Nacchio this week, and I call it that not because Nacchio is aging backward, but because he is trying to make time move backward. Maybe then, I'm alluding to the wrong movie, but in any case, Nacchio's legal team argued last week he never should have been charged with insider trading or put on trial in the first place. They suggested, or at least hinted, that "material inside information" and countering public statements at the core of the conviction were nothing more than garden-variety chatter by a CEO looking to stoke his firm to a better performance.

The latest Nacchio Supreme Court brief was filed last week in anticipation that the high court could, maybe, possibly take a look at the case as early as Thursday (maybe). The quote from the brief that has been making the rounds of various publications reads: "If the predictions underlying this prosecution count as 'material inside information,' then no company or executive can buy or sell stock, ever, without risking capricious criminal prosecution."

I am not a Supreme Court judge, nor was I even close to being considered President Obama's alternate choice to Sonia Sotomayor, as far as I know, so I have no idea if the argument holds legal water or not. However, Nacchio and his team might have inadvertently suggested an interesting idea here about how CEOs should be compensated, and how freely they can manage their corporate stock. Perhaps it would be better in some ways if CEOs weren't expected to be personally responsible for so much of their company's stock as an exhibition of loyalty, faith and sense of purpose. Maybe it would be better if they were barred from buying, owning and selling their own company's stock altogether--at least until they retire or otherwise leave the company.

If that were the case, CEOs truly could come into companies as hired guns, getting paid on a salary basis, but having compensation packages back-loaded with bonuses that include even bigger stock awards than we traditionally have seen. But, rather than leave the selling and buying of stock to a CEO's whim, the stock award could go into a separate fund with an independent party assigned to manage it. The CEO's stock program could be managed as it would be by any astute cold-blooded investor.Taking the control of that stock from a CEO's hands could help avoid a similar case from happening again.

I'm sure someone will argue how dumb an idea this is, but at least it's a new idea. After former AT&T chief Edward Whitacre was named to lead General Motors last week, it occurred to me that corporate America is still more content to recycle old ideas rather than come up with fresh ones.

-Dan [1]

For more:
Here's last week's Denver Post report [2] on the Nacchio brief