Tech Learns Give-and-Take in Bill on Expensing

Opinion: Silicon Valley is as close as it's ever been to seeing its position on stock options enacted into law, thanks to a little political compromise.

Silicon Valley is as close as its ever been to seeing its position on stock options—that theyre a necessary and vital part of a corporations life—enacted into law. Even if the effort fails, theres some evidence that the fight has had some beneficial effect.

First of all, its taught tech a long-overdue and much-needed lesson in the art of political compromise. To get this far, tech lobbyists have used a range of tricks, many of them the very sort of inside-the-Beltway maneuvering most people in the business claim to despise. Strangely enough, however, it works.

Heres how things stand right now: The House of Representatives is getting ready to vote on the "Stock Options Accounting Reform Act," a bill that would require companies to treat options as expenses only when they are given to corporate officers.

Thats a big concession on the part of most tech companies that used to like to show up in Washington, wave tattered copies of their civics textbooks and talk about having dinner with President Bill Clinton.

Convinced that they were dealing with the man in charge, some of the valleys most powerful executives and investors believed that the righteousness of their cause would carry the day. The 535 members of the House and Senate were less than enthused by this approach.

But in the deal, brokered by TechNet as a member of a group calling itself the International Employee Stock Option Coalition, tech has changed tactics. And its got a lot to show for it. Stocks that are expensed are assumed not to fluctuate in price, a big break for the companies counting them as expenses.

And startups dont have to expense options until their market caps reach $25 million. Larger, newly public companies have three years before they have to go through the expensing process. All in all, its a nice deal on an issue pretty much written off as dead when TechNet lobbyists marched off to Washington, D.C.

Working with a pro-business Republican Congress that would like to be a bit cozier with tech didnt hurt. Nor did the location of Dell, an expense opponent, in Texas, home state of House Speaker Tom DeLay.

Tech started talking about small businesses and the risk inherent in startups instead of having employees talk about new homes and kids college, things that didnt really set stock option apart from any other sort of employee incentive program. It was a subtle change, but you can see its marks in the bills wording. It was successful.

The legislation is expected to pass the full House. After that, its harder to predict what will happen. Mostly likely, it die when it gets to the Senate, where Sen. Richard Shelby, R-Ala., has been forcefully opposed to the bill, saying, as do other critics, that it unnecessarily interferes with the independence of the group thats in charge of setting standards on this stuff, the Federal Accounting Standards Board (FASB).

If the Senate doesnt act before it adjourns—and in this election year, no one is willing to predict when Congress will close up shop and go home—tech interests might have to start all over again on the legislation next year.

Or will they? As the stock-options legislation has moved forward, FASB has softened its position, says Jeff Peck, techs lobbyist in Washington. He points to talk among FASB board members of a delay in implementing options expensing, and to talk during public discussions in Palo Alto and Norwalk, Conn., about formulas besides the "fair value" method (also known as Black Scholes) for evaluating the ways in which options are expensed. Much, says Peck, depends on FASBs decisions about implementing new rules.

"It could be done in a provocative way that encourages Congress to come back to this in January," he notes. Or, as they say in Washington, everyone could declare victory and go home. "Part of that is going to depend on how this process is going to play out."

For its part, the FASB folks are folding. But they sure sound a lot nicer than they used to, acknowledging that the noise surrounding corporate stock reform appears to have died down on Capitol Hill.

"What one would construe as softening—I think its in the eyes of the beholder, says Steven Getz, a spokesman for the Financial Accounting Foundation, which oversees FASB. "What FASB has been doing is going through its normal procedure," Getz said. "I think FASB would be more inclined to say its listening." Technology and Politics columnist Chris Nolan spent years chronicling the excesses of the dot-com era with incisive analysis leavened with a dash of humor. Before that, she covered politics and technology in D.C. You can read her musings on politics and technology every day in her Politics from Left to Right Weblog.


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