NEW YORK, April 23 (Reuters) - Intel Corp. Chief Executive Craig Barrett on Wednesday suggested CEOs may refuse to certify financial results if stock option expensing was forced upon them, opening a new front in the bitter battle between accounting rulemakers and the tech industry on the issue.
In an interview with Reuters, Barrett criticized the Financial Accounting Standards Board, which sets U.S. accounting rules, and suggested the fight against stock option expensing was far from over.
"FASB is being a bit disingenuous in terms of their inviting opinion, inviting discussion, on whether options should be expensed or not," Barrett told Reuters. "They went directly from Enron and WorldCom to 'Let's figure out how to expense options because there's this public outcry against CEO compensation.'"
Barrett's comments mark the first time a major U.S. company, let alone the world's largest microchip maker, has argued that civil disobedience could be a suitable response to such a rule. The remarks, penned in an opinion piece in the Wall Street Journal, come as FASB pushes ahead quickly to formulate new rules requiring companies to treat stock options as a regular expense.
Like many of his peers in the tech sector, Barrett argues that the most widely used model for valuing stock options -- the Black-Scholes model -- comes up with a wildly misleading figure for stock option costs and in turn, would lead to misleading financial statements.
But in a twist to that argument, Barrett adds that by swearing by those options calculations, executives might end up violating the Sarbanes-Oxley Act, passed in the aftermath of the accounting scandal that brought down Enron Corp. ENRNQ.PK , which requires executives to swear that their financial statements are accurate.
FASB added a project on stock options to its agenda earlier this year and on Tuesday agreed it would focus on treating options as an expense. The group has said it will try to find a better way to value options, if possible.
A stock option gives the recipient the right to buy shares at a fixed price before the option expires.
"If stock-option expensing becomes reality, it leaves CEOs with two options: Comply with Sarbanes-Oxley and certify as accurate numbers that are inherently flawed," Barrett wrote in his op-ed piece. "Or, support the spirit of the new law and refuse to sign off on the numbers because we don't believe they present an accurate financial picture."
Barrett dismissed as "speculative" the question of whether he would ultimately refuse to sign off on Intel's financial statements if stock-option expensing became mandatory. But he said he had discussed the idea with other technology companies and promised to continue lobbying aggressively against stock-option expensing.
"You're looking at the equivalent of a FASB tsunami or avalanche or steamroller coming down," Barrett said in the Reuters interview. "So we talk a lot in terms of, 'Well, what can we do to get our message out?'"
The technology industry, which relies on stock options to attract and motivate employees, has long fought against efforts to treat stock-option costs as a regular business expense, since doing so would pummel earnings at several tech companies. In the mid-1990s, the tech sector used its political muscle and fierce lobbying to beat back such a proposal from FASB.
"The people opposed to expensing options are looking for any way they can possibly find to support their position and raise concerns about expensing," Dennis Beresford, who headed FASB when it took up the stock options issue in the mid-1990s, said about Barrett's latest comments.
Initially, the tech industry argued that expensing stock options would force companies to rein in options grants and would hurt rank-and-file employees toiling in Silicon Valley. Lately, technology companies have pointed to the difficulties in valuing stock options as the main reason why they should not be expensed.
In the past, analysts have said it would be tough to kill the FASB proposal given the investor support for stock option expensing after a spate of accounting scandals.
"If I was superconfident would I have written an op-ed piece?" Barrett said when asked if he was confident of beating back FASB's efforts. "We're trying to get our message out, we're trying to work with the legislators, we're trying to resolve this issue, so it's an open question right now." |
