Bart,
I think you missed the mark when talking about expensing options. I'm not
sure how you were interpreting it - you made it sound like they're getting
away with something - perhaps you thought they were writing options off?
If they don't have those options included in their balance sheet - they
are getting away with something.
They are misleading investors about the net value of the company.
In fact, expensing options is something most companies have resisted -
it
makes them look less profitable in an era when they want to look as profitable
as possible.
That's my point - that's what needs to be fixed.
Expensing options actually gives a FAIRER picture of the company to the
investor. To use your example, let's say you have a $20 million dollar
company that has given out options that can be cashed in at any time.
OLD WAY: No one knew how many of these options had been granted (ones
given to corporate officers had to be public, I think). At any point
after
people were vested in the options they could sell them, and the company
grants them stock for less than the going price.
This is a liability for the company - something it owes. It was never
on the books because who knew when they'd be cashed in, if ever?
I've never heard of an option that weren't cashed in. If the guy dies,
surely his heirs would cash them in, right? Unless you're filthy rich and
have no need for money - who wouldn't cash them in?
The problem comes when people do cash them in. In your example, everyone
cashes them in at once, and the company is suddenly worthless in a 24 hour
period.
Investors would be pissed if this happened.
Yes, you're saying the same thing I'm saying - do we disagree on anything?
NEW WAY: Post-Enron, there started to be calls for companies to expense
options - basically put them on the books. It would drive the perceived
"profitablility" of the company down, but it gave a more realistic picture
of the company's net value. In other words, list the options as an
expense
that the company has (or will have to) incur.
Yes, that's what the law should say, otherwide they'll continue to lie and cheat.
Most of the companies starting to do this - and there were few at first
- did so
because it was important to them to have everything out in the open,
so they wouldn't get mired down in some accounting scandal.
Yes, it should be a law - stealing is a crime.
Many companies were reluctant - if they were forced to do this, they'd
look
much less profitable. But it's thought to give a much more realistic
view of things.
The Financial Accounting Standards Board is considering making this a requirement.
Yes, it should be a law - stealing is a crime.
The "non-binding" shareholder vote was probably to show that the shareholders
were
okay with it, and actually wanted it, although it doesn't force the company
to do it
(it may be that the shareholders don't have the power to do that, maybe
only the board does).
Hope that helps,
- Tab
I think we may have gone in a circle here.
The only place we might disagree is I'm saying this MUST become law - and
soon.
Having a unexploded bomb in the books isn't good for a company's health.