Chambers: Stock Options Inspire Innovation
John T. Chambers, chief executive officer of networking giant Cisco Systems Inc. (CSCO ), is an outspoken critic of upcoming accounting rules requiring companies to expense stock options. In an e-mail exchange with Senior Writer Steve Hamm, Chambers explains his position:
You argue that expensing options will cost the U.S. jobs. Why?
Entrepreneurial jobs are no longer geographically bound. The next Silicon Valley can happen anywhere in the world. The education level of workers in other countries has caught up with and is passing the United States. America is starting to lose its world-leading position in innovation -- meaning expensing couldn't come at a worse time. All leading technology companies have used stock options to inspire employee innovation and results, while shareholders have certainly benefited. If this incentive is taken away or dramatically limited, I believe that even more jobs created over the next two decades will go offshore, creating a growing competitive advantage over the U.S.
Why do you expect this argument to have resonance now?
There are three primary reasons. First, it has become clear that stock option expensing will not accomplish its intended goal of better accounting or corporate governance. More and more, experts are starting to agree that expensing under current models does not create greater accounting accuracy, transparency, or reliability. Second, the fact that there will be negative effects on jobs, competition, and productivity -- factors not initially considered -- is now at the forefront of the minds of most Americans. And third, we're seeing more government, business, and economic leaders, and shareholders begin to realize that the decision to expense cannot be made in isolation. It is part of a much larger equation with very serious downside potential if improperly implemented.
Critics say the tech industry is just looking for a handout. It's the steel industry all over again. What's your response?
This is an entirely different scenario. We are not asking for tariffs, for subsidies, or for cash. We are asking for a level playing field based on the values of ownership and risk-taking. We want to ensure that U.S. companies retain the ability to use broad-based employee stock options as an incentive to encourage ownership and innovation. Our country's global competitors, especially in Asia, will continue to use employee stock option plans for a significant competitive advantage.
How big are the risks to the tech sector longer-term?
I hope that I'm wrong, but I believe that U.S. tech employment would most likely see a major decline over the next several decades, at a time when technology jobs will increase in other parts of the world. At this time, I think the No. 1 rule should be to "do no harm." Suppose there is only a 50-50 chance that expensing options will lead to the kind of negative impact on U.S. competitiveness I've described. That's a risk I think we need to, at a minimum, consider much more carefully in terms of the potential economic and job downside implications.