Get ready to be pissed:
Xerox's bylaws indemnify its executives on certain claims -- including legal consequences of their business mistakes (including, you will see, disgorgement of profits demands). The company also buys Director and Officer ("D&O") insurance policies to cover such losses. This is common in corporate America. The Economist (6/14-6/20/03) says this must be added to the list of moral hazards. Why?
Well, two weeks ago the SEC meted out punishment to Paul Allaire, boss of Xerox in the late 1990s, when the company injected non-existent profits into its accounts to the amount of $1.4 billion. The SEC ordered Allaire to pay $1M in fines and disgorge $7.6M in gains he made out of the fraud. Since the company indemnifies the $7.6M (and the $11.8M assessed to other officers), Mr. Allaire walks away with a tidy $6.6M profit.
Plus, as insurers resist fraud claims, he leaves in his wake the likelihood of pending litigation between Xerox and its insurers over the D&O policy. That's a lot of waste of company (and stockholder) money in at least two companies so one fat can can waddle away in satisfaction. Oh, and Xerox stock prices dropped last week -- more fallout caused by these actions.
There is good news: job security for lawyers.
[ 06-25-2003, 03:02 PM: Message edited by: Timber Loftis ]