August 29, 2003
The Inside Track/Policy, Players and Politics:
There's Slow, and Then There's Slow: The reform move on options is going on 10 years old with no results. The moving parts are open to view. But if it's no longer an issue by the time it's resolved, was it ever one?
By Michael Dumiaka, U.S. Banker
It's not yet in general use. But one day, in a lazy echo of a campaign season gone by, one of the meanings of 'slow' will be measured by the exact speed and tone of a Joe Lieberman speech. "Ah, jeez. I had to get my driver's license renewed on my lunch break. The line was so...Lieberman."
Which is why it makes sense that Lieberman was an early mover on the options issue-that is, the once-obscure reform move to make corporations account for options as a company expense. Lieberman was out in front on something moving so slowly that it's entirely possible he'll get back in front of it again-this time with a position (being a party hopeful and all)-entirely different from the time he got burned in the first place (by ganging up long ago on Arthur Levitt to squelch the move, but not so long ago that people forgot when Enron came around).
The move to expense options, given huge renewed momentum last summer on a swell of reform sentiment-recall, although it's already getting hazy, that the Biggs affair was the straw that shattered Harvey Pitt's tin ear-turns out in the end to be (after all) an accounting issue. And that means slow. Lieberman slow. The Financial Accounting Standards Board, which was once thinking the end of this year, now says it will have something tentative on the options issue by February or March 2004. It will be well into fall of next year before anything compelling happens.
That also means that a congressional measure aimed at delaying reform on the options issue can wait. Which is good, because the delaying measure was itself somewhat stuck. It took a couple of days for an aide to find the status of the bill-and this is from one of the bill's big backers. It needs still more backers for it to go anywhere. So some arm-twisting is going on, but it's pretty laconic-done with a glass of sweet tea, from the hammock.
A couple of things are happening. The board got pummeled the last time it tried to grapple with options, and it doesn't want that again. Another thing is that the board just moves slow.
It's moving so slowly that it's possible to figure who's taking which sides. Any stealthy poison pill will carry fingerprints. And-perhaps-some counterintuitive things are open to view.
For one thing Democrats, who rushed to champion reform, are coming down all over the place. Lieberman may have been the first clue to this years ago, but no-one noticed. So we're treated to the prospect of Dem lion Carl Levin of Michigan taking up the cause of options expensing, only to be opposed by California liberals who happen to also represent Silicon Valley. The United States Public Interest Resource Groups support efforts to expense options, and so does the Social Investment Forum. Presidential hopefuls are lining up in support.
But not House Rep. Anna Eshoo, who's co-sponsoring the bill aimed at thwarting the effort. If passed, her slow-moving bill would, after a three-year-ban, have the Securities and Exchange Commission check off on any options move and do a "cost-benefit" study. That's "ain't ever gonna happen" in congressional language.
"That would undermine the whole process. It would just be a disaster," says Michael Granof, a University of Texas accounting professor who's written articles calling for options expensing.
Eshoo, a Palo Alto Democrat, is joined by Darrell Issa-the GOP gadfly who bankrolled the California recall-as well as 17 Dems and 21 Republicans in a letter urging the accounting standards board to drop the issue.
Granof sees dark forces at work. "There are people like Levin who are concerned, there are others like Feinstein and Boxer who are representing their constituents. There are others like Lieberman who's probably embarrassed about the whole thing," he says. "The basic political and economic forces-by that I mean campaign contributions-have not changed."
It could be that it's just complicated. It is, after all, accounting. The concern generally cited by opponents of options expensing is that it can't be done accurately and that it deprives entrepreneurial employees incentives to be great. And are options that sink under water a company expense?
Ok. Massaging earnings to short term stock moves and causing catastrophic scandals aside, options are too often used by instead of cash in order to get energetic employees to work to the bone for nothing. That's more likely the issue at hand in California, and not reform vs ntrepreneurship. It explains the Silicon Valley pressure points and why the debaters are all over the map.
Because how complicated can it be if half of corporate America's leading companies started counting options as expenses voluntarily-and started doing so last summer? Microsoft, Coke, Bank One, Sovereign and 200 others are all merrily checking off employee options as an expense to the company. Last we checked, you could still get a Coke at the Zippy Mart and cats and dogs still don't really trust each other. The accounting methods on the table for getting this done are well known. Big companies are already doing it. And options are an expense.
Even the Europeans...well, never mind that.
For information on specific programs at the McCombs School, consult our contacts page. For media information, contact the Communications Director by phone at 512-471-3314 or by email at CommunicationsDirector@mccombs.utexas.edu.
