TeleTech time travels back to 1996... - www.footnoted.org - July 18, 2008

July 18, 2008 at 9:03 am by Wendy Fried

TeleTech time travels back to 1996…

This week TeleTech Holdings (TTEC) restated 12
years’ worth of financials dating back to 1996 - the year in which
Nintendo 64 debuted, Alan Greenspan spoke of “irrational exuberance”
and Christie Brinkley married that scoundrel she’s now divorcing.

The culprit was misdated stock options. In a February 8-K,
TeleTech announced the results of an internal review of option grants
from the company’s 1996 IPO through August 2007, finding lots of
mistakes but “no willful misconduct.” (A relief, presumably, for
Chairman, CEO and founder Ken Tuchman, who owns about 45% of the stock.)

On Wednesday TeleTech filed its 2007 third quarter 10-Q, 2007 10-K and 2008 first-quarter 10-Q.
These provide details on the options investigation (which, BTW, cost
the firm $8.6M last year and will probably eat up another $10M this
year.)

If we eliminate misconduct, we find ourselves in the land of
cluelessness, sloppiness and ineptitude. Out of 4,886 grants, 3,021 had
incorrect grant dates, including all of the 2,330 routine yearly grants
made from 1999 to 2006, amounting to 6.5 million options. There were
other goofy mistakes, like recording option grants for folks who were
no longer on the payroll. (The report blames “administrative delays,”
plus the fact that no one bothered to inform the plan’s
administrator these employees had departed.) And the firm’s options
accounting treated some consultants like employees.

As in many of these options messes, the compensation committee’s use of “unanimous written consents”
instead of real meetings (and befuddlement over who had authority to
make grants) led to massive confusion about the dates on which options
were officially granted. The investigators had to reconstruct the
circumstances behind every grant to figure out the “appropriate” date
(and hence the real exercise price) for each one. The company admits
that some dates “could not be determined with certainty.”

Mercifully, all this fuss resulted in a pretax compensation charge of only $59M. But the SEC and IRS are still investigating.

TeleTech is in the field of business process outsourcing. “We help
Global 1000 companies …improve quality and lower costs by designing,
implementing and managing their critical front and back office
processes,” says its 10-K. But when it comes to its own stock options,
process doesn’t seem to be TeleTech’s strong point.

Note from Michelle: Footnoted friend David Milstead first wrote about TeleTech’s options problems here and also here when the results of the investigation were first announced.