Ten years ago, the Financial Accounting Standards Board proposed that stock options granted to executives and employees be treated just like any other form of compensation and therefore counted as an expense on corporate balance sheets. The proposal was entirely logical. Compensation is compensation. A company gives stock options as a form of payment in return for services. So, of course, it's a business expense.
But the corporate reaction to this modest proposal 10 years ago was so hostile, you'd have thought the Standards Board had declared war on capitalism. Corporate America furiously lobbied Congress and the Board to back down.
Well, that was a decade ago, and we saw the results. Remember? We had a technology bubble followed by a stock bubble. Millions of small investors crowded into the stock market, thinking that share prices bore some resemblance to the true value of the businesses they were investing in. Meanwhile, corporate executives, high on their stock options, pumped up the value of their shares through every accounting scheme known to human kind, and then cashed them in for tens or hundreds of millions of dollars, dumping the steroidal stocks before they imploded. And then -- surprise, surprise -- hapless, helpless, clueless investors were left with near-worthless pieces of paper.
And now the Standards Board is back with its same proposal: treat stock options as expenses. You'd think that after all we'd been through, this would be a no-brainer. But, wait. Maybe you didn't know that this Congress is owned -- lock, stock and pork barrel -- by corporate America. Many of the same companies that howled 10 years ago are howling now and lobbying like crazy. Just a few weeks ago, the House Committee on Financial Services actually voted to prevent the Standards Board from putting its proposed rule into effect.
The hero of this deja vu drama is likely to be Alabama Republican Senator Richard Shelby who, as chairman of the Senate Banking Committee, says he is determined to let the Standards Board do its thing, even if he has to hold up the entire federal budget. Well, good luck to you, Senator Shelby, and thanks for having some common sense ... and a memory.
