The Campaign to Keep Options off the Ledger
Chalk up another win for Silicon Valley. On June 17, the board of the California Public Employees' Retirement System voted unanimously to set aside a staff recommendation that it should call on companies to deduct from profits the value of stock options that they give to employees.
In April, CalPERS' staff had urged the board to push for expensing options, a position other big institutional investors, such as teachers' retirement fund TIAA-CREF, have taken. But Valley executives, including venture capitalist John Doerr and Marimba Chairman Kim K. Polese, bombarded the directors with calls urging them to vote no.
Doerr & Co. argued that there isn't an accurate way to value options. Moreover, they asserted, forcing companies to deduct options from earnings would make them too expensive, eliminating a vital recruitment tool. Technology Network, an industry political action committee, even got mid-level employees at Intel Corp. (INTC ), Cisco Systems (CSCO ), and other companies to write to CalPERS or testify in person about how options helped them buy a house or support their extended family.
The campaign was just the latest round in Corporate America's all-out campaign to thwart a rewrite of accounting rules for options since the collapse of Enron Corp., Global Crossing Ltd., and other aggressive issuers of them. In March, lobbyists derailed a bill co-sponsored by Senators Carl Levin (D-Mich.) and John McCain (R-Ariz.) that would have made companies expense options if they take tax deductions when they're exercised. Industry groups opposing the bill--including Financial Executives International and TechNet--wrote to all 100 senators. And in mid-June, tech industry reps even got Senator Paul Sarbanes (D-Md.) to delete from an accounting reform bill a provision directing the Securities & Exchange Commission merely to study expensing options.
Now, the battle is moving abroad. The London-based International Accounting Standards Board is drafting rules requiring options to be expensed. Business groups fear that would rev up support for expensing in the U.S. Dozens of U.S. companies, including Cisco Systems and Motorola Inc. (MOT ), have flooded the IASB with critical letters. However, IASB Chairman David Tweedie isn't persuaded. "Everything I've heard to date convinces me that stock options are an expense," he says.
Some European companies don't want Tweedie to back down. "Especially after Enron, treating options as expenses would provide a form of protection for shareholders and help win back their trust," says Heinz-Joachim Neuburger, chief financial officer of Siemens. While U.S. business may have won a skirmish at CalPERS, it still can't declare victory in the stock-options expensing war.
By Amy Borrus in Washington