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To: Lizzie Tudor who wrote (174667)	5/20/2003 10:18:00 PM
From: hueyone	Read Replies (2) \| Respond to of 186894

re: Tech Lobbies All the bag fulls of money descending on Washington are in favor of keeping the current, misleading accounting going. As far as I know, there are no bag fulls of money descending on Washington fighting for expensing of stock options on the income statement. The pro options expensing crowd is only supported by the compelling logic of their arguments (imo), which are holding up remarkably well under the current onslaught from the money men of Silicon Valley. I am crossing my fingers that the Congress can show some character this time and does not succumb to campaign contributions. In 1994, the independent FASB backed down from their decision to require expensing of stock options on the income statement under threat of having the FASB eviscerated by the Congress; the decision had absolutely nothing to do with anyone at the FASB believing in the merits of the arguments favoring keeping stock option expense hidden from the income statements. Here is a statement from Arthur Levitt, former SEC Chairman about that period. Arthur Levitt's biggest regret from his entire career as Chairman of the SEC is that he backed down in the fight to expense stock options on the income statement. He was afraid that if he and the FASB fought on, the FASB would be gutted. This entire Frontline PBS interview with Arthur Levitt is a good read: pbs.org Snip: The Senate passed a [resolution] about the proposal of the standard setter to expense stock options. Why did they do it? There was no question in my mind that campaign contributions played the determinative role in that Senate activity. Corporate America waged the most aggressive lobbying campaign I think that they had ever put together on behalf of this issue. And the Congress was responsive to that. And last year, in Congressional testimony before the Committee on Banking, Housing and Urban Affairs, Dennis R. Beresford, who was the FASB Chairman at the time Statemen 123 was issued, shared his views about that Statement and the reasons for the Board’ decision: As many of you may recall, the FASB had proposed that companies account for the expense represented by the fair value of stock options granted to officers and employees. The business community and accounting firms strongly opposed this proposal and a number of corporations engaged in a lobbying effort to stymie the FASB’s initiative. Certain members of Congress were sufficiently influenced by the appeals from corporate executives that they were persuaded to introduce legislation to counter the FASB’s proposal. The legislation would have prohibited public companies from following any final FASB rule on this matter. More importantly, the legislation would have imposed requirements that the SEC repeat the FASB’s process on any new accounting proposals, effectively eviscerating the FASB. Faced with the strong possibility that its purpose would have been eliminated by this legislation, the FASB made a strategic decision to require companies to disclose the effect of stock options in a footnote to the financial statements but not record the expense in the income statement. fasb.org And some more history for the stock option expense issue for anyone interested: #reply-17249383 Regards, Huey

To: Lizzie Tudor who wrote (174667)	5/20/2003 11:08:19 PM
From: hueyone	Respond to of 186894

re: U.S. Economy Growth Engine Many bright folks would dispute your underlying assumption that not expensing stock options leads to more growth, especially long term sustainable growth, than expensing options does. Greenspan, Volker and Arthur Levitt to name a few. One of the hallmarks of a strong, sustainable growth economy is capital flowing to strong companies who are performing, but today's accounting is producing distorted measures of performance and is likely distorting capital flows to many non performing companies. From Greenspan again:<g> federalreserve.gov As I noted at the outset, some view the current treatment of option grants as having been a major aid in raising capital to finance the rapid exploitation of advanced technologies. While the vital contribution of new technology to the growth of our economy is evident to all, not all new ideas create value on net. Not all new ideas should be financed. In recent years, substantial capital arguably was wasted on a number of enterprises whose prospects appeared more promising than they turned out to be. This waste is an inevitable byproduct of the risk-taking that generates the growth in our economy. However, the amount of waste becomes unnecessarily large when the earnings reports that help investors allocate investment are inaccurate. In my view, the tendency to treat everyone in Silicon Valley like a superstar performer, is slowly dragging down the performance of the entire Valley. Not everyone can be, or are, outstanding performers. Let's sharpen our pencils for the scorecards, count all the revenues and expenses, reward the winners with more capital to enable them to continue with their important contribution to the U.S. economy, and let the poorly run, poorly managed companies fall by the wayside. Let the strong grow stronger and the weak grow weaker. Of course this is not to say that there are not investment circumstances that warrant investors supporting money losing companies for a period of years in pursuit of a greater long term vision, but just don't write the income statement to claim these companies are producing wealth for investors at a time when they really are not. JMO, Huey