Kucinich: Congress Has Not Learned The Lessons Of Enron Stock Option Bill Nothing More Than Gimmicks
Washington,
Jul 20, 2004 -
Congressman Dennis J. Kucinich (D-OH), today, issued the following statement on the House floor on H.R. 3574, the Stock Option Accounting Reform Act:
“Welcome to Alice in Wonderland. The notion that the legislation before us today could be labeled with such a title originates in a statement by Warren Buffet, CEO of Berkshire Hathaway.
“Why does the 2nd richest man in American oppose a bill that could conceivable make his company look more profitable? It’s because the bill only makes the profits look better on paper, while the real bottom line does not change.
“The bill perpetuates an accounting gimmick that has harmed far too many investors. Think Enron.
“This bill blocks implementation of accounting standards, which were proposed by the Financial Accounting Standard Board (FASB), that would require companies to deduct from their profits the value of the stock options they issue, also known as "expensing.”
“Stock options are a real cost and companies should account for them. By blocking the FASB rule, the bill would deprive investors of important information about U.S. companies.
“Expensing stock options is easy to do. More than 500 companies, and at least 40% of the companies on the S&P; 500, have voluntarily begun to expense stock options.
“This bill further confounds reality by permitting corporations to limit expensing to the top 5 executives and limit the value of those options by eliminating stock market volatility.
“The Wall Street Journal recently reported that many companies that issue options give as little as 2% of them to their top executives. The standard proposed by this bill would hide 98% of these company's options. Congress should not support the fiction that some options are an expense while others are not.
“The bill's suggested method for valuing options could grossly underestimate their true value and provide an inflated view of a company's profits. That is misleading to investors who have a right to accurate information. Take Intel as an example. If this bill were law, Intel would be able to overstate their profits by $991 million. If every company can overstate profits, as this bill allows, then no investor will have accurate info and our markets will neither be efficient nor truly free.
“As for the setting the value of the stock options with a fixed price, Warren Buffet said it best with:
‘I’ve been investing for 62 years and have yet to meet a stock that doesn’t fluctuate. The only reason for making such an Alice-in-Wonderland assumption is to significantly understate the value of the few options that the House wants counted. This undervaluation, in turn, enables chief executives to lie about what they are truly being paid and to overstate the earning of the companies they run.’
“Investors beware of H.R. 3574. I ask that my Colleagues vote no on this misleading and irresponsible bill.”
