New York, NY August 14, 2007 -- Business Section
"Executives had criminal pasts"
by Allan Drury

Minutes after being sentenced to five years in federal prison for leaking insider information from Taro Pharmaceuticals Industries Ltd. in Hawthorne, Zvi Rosenthal sat in the Brooklyn courtroom with his head in his hands, unable for the moment to watch his son, Amir Rosenthal, face the judge for his role in the scheme.
But the trauma of being punished for fraudulent behavior was not a new feeling for the elder Rosenthal, 62. Records show he was sentenced in 2000 to three years of probation and fined $20,000 for making false claims about his work at Isratex, a Brooklyn company the government said provided the military with defective uniforms.
Rosenthal, sentenced in July, is one of two former Westchester executives shown in recent months to have pulled off an unlikely and dubious feat. In an era when technology puts criminal records at the fingertips of any computer user, Rosenthal and Kevin Cassidy, the former chief executive at Valhalla-based Optionable Inc., held executive-level jobs, even though both had felony fraud convictions.
Other factors also make Cassidy's story remarkable. He had been imprisoned for two crimes before serving two stints as Optionable's chief executive, from March 2001 to March 2004 and from September 2005 until May. His second hiring took place long after scandals at companies such as Enron Corp. and WorldCom Inc., experts on executive hiring say, prompted corporate boards to place candidates for executive jobs under the most intense of scrutiny. "That's unbelievable," Jeff Heath, the president of The Landstone Group, an executive search firm in New York City, said of Cassidy's hiring. When Cassidy was hired the second time, the company's stock had just become available to the public, putting Optionable under the watch of regulators and public shareholders.
Optionable, an energy trading company, hired Cassidy, even though the information on his crimes was available to anyone on the Web sites of the U.S. Bureau of Prisons and the federal court system. Also, a LexisNexis search by The Journal News after Cassidy resigned turned up news stories written about his 1993 arrest in Florida on charges of credit card fraud and money laundering, a case that eventually resulted in a 30-month sentence. He also was sentenced in 1993 by a judge in White Plains to serve six months for tax evasion.
Investors in Taro and Optionable may never know how Cassidy got hired twice as chief executive or how Rosenthal remained in his job, even though both had felony convictions on their records, since neither Optionable nor Taro has commented. Officials at neither company returned phone calls seeking comment for this article. But Heath said he suspects that Optionable did not conduct routine background checks on Cassidy before hiring him. Smaller companies sometimes are not as vigilant about checking candidates' backgrounds, he said.
"The problem we've got is that talent is getting tighter and tighter, and companies are getting more desperate to hire people and they may make mistakes," he said. "They may close their eyes for a minute and say, 'We've got the guy we want and forget about doing the due diligence to check him.' " The company never disclosed Cassidy's convictions in a filing with the U.S. Securities and Exchange Commission, a fact that supports Heath's belief that the company was not aware of his record. While no law requires public companies to disclose such information, they are supposed to disclose information that investors would consider "material" when considering whether to buy or sell the shares.
It's less clear that Taro would have been obligated to disclose any information it may have had on Rosenthal's past, since he was not as close to the top of his company's hierarchy.
Rosenthal started working for Taro in 1994 and was promoted to vice president of materials management and logistics in 1997, years before his first conviction.
Heath said most companies do not routinely conduct continuing checks on the records of their existing executives.
Rosenthal's position as vice president gave him access to information on Taro's earnings, drug approvals and other matters before the public. He leaked that information to Amir Rosenthal, 29, who tipped two brothers and three others, a scheme the SEC said netted $3.7 million.
Executive search experts agreed companies stepped up their reviews of candidates for top jobs once the corporate scandals burst into public view, starting with Enron in late 2001.
Along with searching criminal histories, investigators that companies hire search out candidates' driving records from state motor vehicle departments - the thinking being that a person who's chronically reckless behind the wheel may not be responsible when it comes to handling millions of dollars or dealing with employees and customers.
They also want to know about a job candidate's financial standing. A person with crushing personal debts may also not be the best person to run the finances of a company or division. Even worse, that person may be tempted to embezzle.
But some companies are also suspicious of a person with tremendous personal wealth because they believe that person may be unmotivated to work.
"They want you to owe money, but not a lot of money," said Alan Work, who runs Work & Partners LLC, a White Plains search firm.
Drug tests and physical exams are also routine requirements before a candidate gets a key to the executive suite, Work said.
Work called the Rosenthal and Cassidy cases surprising but said he knows of others who managed to get or hold jobs with questionable histories.
"It still happens," he said. "Surprised? You're always surprised when a guy has two convictions, but some people self-promote pretty well sometimes.

New York, NY, September 20, 2003 -- Business Section
"Grasso pay flap puts corporate boards on the spot"
by Allan Drury & Abigail Klingbeil
Public outrage over New York Stock Exchange Chairman Richard Grasso's sky-high payout will force corporate boards to scrutinize executives performance more closely before setting their pay, say those who study corporate conduct.
Board members will want to make sure they can justify the money they pay their executives unlike NYSE directors who had no ready answers as to why their agreement with Grasso awarded him a $140 million retirement package.
"I think any chairman of a compensation committee and or any member is now looking at this and boning up on what their CEO makes and preparing themselves to explain it." said Thomas Wamberg, the head of North Barrington, Ill - based Clark Consulting, which advises companies on executive compensation. "They're going back to school."
Publicly traded companies will also share with investors information about how much their executives make in salary, bonus and stock awards, Wamberg said.
"This next proxy season, you'll see things that used to take four paragraphs to explain will take eight or 10 paragraphs," he said.
It's all part of Corporate America's campaign to win back trust in the wake of Grasso's forced resignation Thursday from the institution where he worked virtually all of his adult life. The Grasso affair comes after fraud at Enron Corp., WorldCom Inc. and numerous smaller companies cost investors billions of dollars.
The recession and stock market slide already have prompted many large companies to trim the salaries, bonuses and stock options they provide their chieftains. General Electric Co. announced the same day that Grasso quit that it would tie chief executive Jeffrey Immelt's compensation to five-year performance targets.
General Electric knows the spotlight on an executive's pay and perks can burn. Papers filed in former GE boss John F. Welch's divorce revealed Welch had a $9 million a year pension, access to a Manhattan apartment valued at $80,000 a month, food, wine and pricey tickets to sporting events. Welch agreed to begin paying GE up to 2.5 million a year for the benefits. Though the NYSE is a privately held business, it is much different than the public companies Immelt and other well-paid executives run. As a regulator, the NYSE has an obligation to police corporate behavior and protect investors' interests. The NYSE is the world's largest stock market. It has 2,800 listed companies with a combined market capitalization of $14.9 trillion.
Unlike public companies, which must file detailed reports with the U.S. Securities and Exchange Commission, the NYSE had not been required to disclose compensation. Grasso's package became public knowledge only after SEC Chairman William Donaldson demanded the information.
But any distinctions between the NYSE and public companies are likely to be lost on an investor community battered by losses and shaken by the scandals.
Diane Lerner, a senior compensation consultant at the Manhattan office of consulting firm Watson Wyatt Worldwide, says Grasso's departure will remind companies that full disclosure is critical to keeping investors and other constituents content.
"It's yet another scandal," says Lerner, who typically meets with 10 to 12 compensation committees a year . "I think all of these do cause people to look back at what they're doing, but this one I think has less broad relevance."
Since Grasso was in charge of a company that makes guidelines and rules for publicly traded companies, the exchange's lack of disclosure and Grasso's giant payout seemed particularly egregious. Lerner says.
All agree that serving on a compensation committee - which is usually made up of directors just became more of a high-pressure job. Brian Foley, managing director of the executive compensation consulting firm Brian Foley & Co. Inc. says it appears that some NYSE board members - who had approved Grasso's compensation package - did not realize how much money the exchange's top executive was making.
"l believe one of the impacts this controversy is going to have is it will underscore the need for not only compensation committees but boards as a whole to better understand how much is being paid, how it is being paid, when it is being paid and why it is being paid," said Foley, whose company is based in White Plains.
Foley says Grasso's pay package reflects problematic design, decision-making and disclosure. And while Grasso walked the gangplank, Foley says the board had a major role in this controversy.
He says the Grasso situation will serve to remind other quasi-public institutions such as Freddie Mac, Amtrak and United Way, that they should be as accountable as public companies are supposed to be.
"You would think this board would be among the most qualified and have access to the best advisers." Foley says. "This just underscores the kind of a problem that can arise anywhere when you don't pay attention to the details."
Ironically, the NYSE is one of the entities that led the charge for executive compensation reform in the wake of the corporate scandals in the past few years.
In June, the SEC approved rules adopted by NYSE and the Nasdaq Stock Market that require shareholders to approve stock compensation plans, including stock options.
NYSE also has a proposal that would require each listed company to write a charter outlining the roles and responsibilities of it's compensation committee. SEC spokesman John Heine says that proposal is still pending.
Alan Work, the president of Work & Partners Executive Search LLC in White Plains, agreed the Grasso controversy will make board members take a closer look at what they pay the folks in the executive suites.
Many companies have already become more conservative in setting executive pay than they were in the 1990s when the economy and stock market were booming, said Alan Work, president of Work & Partners Executive Search LLC in White Plains.
That austerity sometimes clashes with a candidate's demands, especially when the candidate stands to forfeit accrued benefits by switching jobs. He said a candidate he has recruited for a job at a consulting firm will lose stock options and other deferred compensation by leaving his current job. The candidate wants Work's client to make up the loss, Work said.
"I think my client's going to walk away," Work said.
He said another of his recent clients, a private wealth management firm in New York, had to agree to give a candidate a generous signing bonus and let other benefits vest after three years instead of five years to lure the individual. By leaving his old job at JP Morgan Chase & Co. the candidate forfeited about $350,000 in short-term and long-term compensation and insisted that Work's client make it worthwhile for him to make the switch. Work said.
But not all observers are convinced Grasso's downfall will be the catalyst to fundamental reforms. "I think top executive pay has gotten way out of wack, but I'm impressed by the capacity of boards to be insular and not see things the rest of the world does." said Allen Cohen, a distinguished professor of leadership at Babson College in Babson Park, Mass.
Cohen said it is unlikely the Grasso controversy will reign in excessive executive pay. Board members selling an executive's compensation usually check to see what executives holding similar jobs in comparable companies earn, he said. Then they strive to set their executive's salary higher than the average, he said.
Directors also tend to be reluctant to question a chief executive's pay because the chief executive has a lot of say over who serves on the board. Cohen said.
"Board members are often dependent on the top people keeping them on the board and being on a board is still very cushy." he said. "You get a lot of money for showing up for four or five meetings a year.
"There are also a lot of networking opportunities you have when you're on a board, and no one wants to get thrown off by standing up to the CEO." he added
Chief executives often propose their own pay packages to a board of directors, he said Cohen said he does not have much faith in some of the reforms companies have made.
Many companies have boasted that they have more "outside" directors - or directors without strong ties to the executive team.
But Cohen said he believes no director is truly independent.
"You still have to get nominated." he said. "You still get interviewed by the top people at the company. The person who nominates you has to be someone who knows you."
Though directors have to be elected by shareholders, most of time the shareholders have little choice, he said. In most elections, the number of people seeking election matches the number of seats that are open.
Only a small percentage of shareholders are able to attend the annual meeting at which directors are elected and the shareholders usually know relatively little about the candidates, he said. It's not like a political election in which candidates take public positions and engage in face-to-face debate.
But Jorge Pinto, director of the Center for Global Finance at Pace University in New York said he believes the Grasso controversy will reverberate through boardrooms.
"I think this last one was so loud and was so costly for Mr. Grasso and the New York Stock Exchange board that it will make other boards aware that compensation should reflect shareholder interests. There's no doubt that every board member, especially those on compensation committees will have to be very careful."
Vernon Hayden, president of Hayden Financial Group LLC in Westport, Conn., and a Westchester resident, said he expects boards to do more homework before deciding on executives' pay. Performance will count more. Professional and personal relationships will count less.
"They'll be reviewing them a lot more closely rather than just saying "You're my buddy. Here's a handout."
But he said he believes the increased diligence will be only temporary.

New York, NY July 6, 2003 —

EXECUTIVE HOPEFULS UNDER A MICROSCOPE
"Stricter background checks now in order in wake of scandals"
by Allan Drury

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The corporate scandals that have rocked the confidence of investors and forced the hand of the regulators the past two years have also had another effect: They've made Alan Work's job harder.
Work, president of Work&Partners Executive Search LLC in White Plains, said his corporate clients demand more scrutiny of candidates for high-level jobs than they did before revelations of fraud at companies such as Enron Corp. and WorldCom Inc.

"I think in this day and age, with what's gone out there, everybody is a bit more on edge," said Work, who was the founding partner of New York City-based Hechkoff/Work Executive Search Inc. before forming Work&Partners this year.

Even before the scandals, companies and the search firms they hired usually checked on candidates' education credentials and work history. But now companies probe deeper to see if a candidate has a criminal record, poor credit, a history of driving violations or other foibles that could raise questions about their responsibility.

Work said companies hiring for lofty jobs such as chief executive, chief financial officer or vice president also demand more aggressive research into candidates' references.
Nobody in Work's business wants the notoriety of recommending the next Kenneth Lay or Sam Waksal to run a company.
"When we present someone to a client, my name is on the door," Work said. "Our reputation is on the line every single minute."
Companies are paying for the extra due diligence. Work said the extra checks can cost up to $2,500.

"But when you're talking about a half million or million dollar position, that's really not a lot of money." he said.

"New York: The Phoenix Soars"
by Pilar Gumucio
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