As CEOs are handcuffed, ethics may not be

Enron's former CEO is set to start a 24-year sentence in a federal prison in Minnesota. Jeffrey Skilling, who won a delay Monday while the court considers a bail request during his appeal, was sentenced in October after being found guilty on numerous counts of fraud and conspiracy for his role in one of the biggest corporate accounting scandals in U.S. history. It led to thousands of job cuts and billions of dollars in lost employee pensions at the now bankrupt energy company.

In September, WorldCom ex-CEO Bernard Ebbers checked into a medium-security prison in Oakdale, La., to begin serving a 25-year sentence for similar crimes that led to the collapse of the nation's second largest long-distance phone company.

Along with other former Enron and WorldCom executives, Skilling and Ebbers will soon be joined by Tom Rubin, the former chief of Focus Media, a Santa Monica, Calif.-based ad placement agency, who was sentenced last week to 5½ in prison for bilking Sears and Universal Studios out of $40 million.

With so many high-ranking corporate officials heading for lockup this year, it may come as no surprise that 2006 is already a banner year for CEO turnover, according to a report by Challenger, Gray & Christmas, a New York-based outplacement firm.

Through November, 1,347 CEOs resigned or were given the boot at businesses across the country, surpassing last year's year-end total of 1,322, the report says.

Behind those numbers is yet another corporate scandal that has already claimed 15 CEOs, and several more senior executives, in the past two months alone — employee stock option backdating.

Since the start of the year, more than 100 companies have undergone federal investigations into backdating, a way of boosting the value of options grants used as compensation by issuing them retroactively on days when company stocks were trading low, the Securities and Exchange Commission says. The worst offenders could be charged with securities fraud, and, if found guilty, face hefty fines and up to 15 years in jail.

All told, Challenger, Gray & Christmas has tracked 54 executive departures related to backdating, including 17 CEOs, 11 CFOs and eight general counsels.

“This could not have come at a worse time for CEOs, who are increasingly being scrutinized for their extraordinary compensation packages by shareholders and federal regulators,” John Challenger, the firm's CEO, says. “To have the highest-paid executives attempt to get even more money by backdating stock options is undoubtedly and understandably being viewed with considerable ire among rank-and-file employees.”

Linda Chatman Thomsen, the SEC's director of enforcement, puts it more bluntly.

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