It was billed as a round table, but seemed more like a boxing ring Thursday as lawmakers and CEOS rained verbal blows on America's accounting rulemaker for moving towards a requirement to expense stock options.
Robert Herz, chairman of the Financial Accounting Standards Board, left the Capitol Hill hearing room bloody but unbowed, saying he would proceed with the effort to develop new rules on stock option accounting.
He indicated he did not want to be like the FASB of the 1990s, which sought to require companies to list stock options granted to executives and employees as an expense, but which backed down under pressure from lawmakers and high-tech companies that have traditionally used stock options to attract workers.
“Nothing changed my mind on the basic expense thing,” Herz told reporters after listening to senators and executives from technology companies criticize the board's tentative decision last month that stock options should be treated as an expense.
FASB, the nations' accounting rulemaker, now faces the task of developing rules on how companies should value those options and reflect their costs in financial statements. Herz said the board hoped to issue a proposal as soon as this autumn.
“We're persuaded by facts, not by people talking about mom and pop in this part of the country or that,” Herz said.
Sen. Barbara Boxer, a California Democrat and sponsor of a bill to put FASB's rulemaking effort on hold, instructed Herz to “pay attention” as she read tales of middle-class Americans who had used stock option grants to pay for houses, college loans and even fertility treatments.
These “rank-and-file” employees would lose their option grants if companies were forced to expense them, Boxer argued.
But Herz retorted that he could read back to her “books” of comments from angry investors insisting that options — which were doled out in huge amounts to executives at companies such as Enron Corp. — were compensation and should be expensed.
Stock options — the right to buy or sell stock for a set price at a future date — are blamed by some experts for inflating corporate earnings because companies are allowed to exclude them from compensation costs, disclosing their impact on profits only as a footnote to financial statements.
Corporate executives told Herz they were frustrated because they felt that while FASB said it was still going through a decision-making process, it had set its course without considering the impact on technologically innovative companies that use options to attract talent.
“What it sounds like to me is you're saying, you've decided on expensing and now you're going to work on valuation,” complained Jim Barksdale, president and CEO of Netscape.
“That's like saying, I've decided, before you come in the courtroom, you're guilty; we're just going to discuss whether we hang you or use the guillotine,” Barksdale charged.
“You're defending a decision you say you haven't made yet,” added Dennis Powell, senior vice president of Cisco Systems.
Boxer and Republican senators Mike Enzi of Wyoming and George Allen of Virginia said they invited Herz and the high-tech company executives to the round table discussion to “plumb the depths” of the stock option expensing issue.