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What’s a Little Payoff Between Friends

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"What’s a Little Payoff Between Friends"

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My esteemed colleague Garance Franke-Ruta has some new exclusive goods on George Allen and his stock options:

On October 20, 2000 — just 18 days before former Virginia Governor George Allen was elected to the U.S. Senate — Xybernaut, a Virginia-based technology company, on whose board Allen served, held an early annual shareholder meeting and awarded Allen a tidy bonus of 50,000 stock options. Allen was granted the stock as part of his re-election to the board at a time when polls showed him to be the favorite in the impending senate election against Democrat Chuck Robb, and when it was clear that he would have to resign his board seat if and when he became a senator. Senate rules forbid members from serving on corporate boards.

The issuance of these options, whose existence is confirmed by the Form Five filing with the Securities and Exchange Commission that The American Prospect is posting in conjunction with this piece, raises questions about why Xybernaut (which filed for bankruptcy in 2005) granted them to Allen so soon before his election to the Senate, and what, if anything, the company expected in return for them. Stock options, a controversial form of director compensation, “are designed to encourage future risk taking and align the interest of the director with the interests of the shareholder,” says attorney Beth Young, a corporate governance expert now lecturing at Harvard Law School. Re-electing a director who might have to resign within weeks “is a little unusual,” she says, and granting him additional options prior to his anticipated departure at an early annual meeting is “very unusual.”

It looks, in other words, like Xybernaut (see more on them) found themselves a clever way to de facto keep paying Allen even while he took office as a US Senator.

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