Intel CEO Speaks Out on Expensing
Intel Corp. Chief Executive Craig Barrett opened a new front Wednesday in the fight against treating stock options as an expense, suggesting that CEOs should consider refusing to certify financial results if forced to follow a rule they consider flawed.
Barrett’s comments mark the first time a major U.S. company, let alone the world’s largest microchip maker, has said civil disobedience could be a suitable response to such a rule.
The remarks, which appeared in an opinion piece in the Wall Street Journal, came as accounting rule makers are moving quickly to mandate stock option expensing.
“I know of no situation where it would be acceptable for a CEO to certify that a company’s results were ‘kind of right,’ ” he said, quoting a phrase he said Robert Herz, chairman of the Financial Accounting Standards Board, used to describe the results of stock options calculations.
The most widely used model for valuing stock options, the so-called Black-Scholes model, fails to give an accurate portrayal of the value of stock options, Barrett wrote.
A stock option gives the recipient the right to buy shares at a fixed price any time before they expire.
By certifying options calculations, he said, executives might end up violating the Sarbanes-Oxley Act, passed in the aftermath of the accounting scandal that brought down Enron Corp. The law requires executives to swear that their financial statements are accurate.
The technology industry, which relies on stock options to attract and motivate employees, has fought efforts to treat stock option costs as a regular business expense because doing so could pummel earnings. In the mid-1990s, the tech sector used its political muscle and fierce lobbying to beat back such a proposal from FASB.
“The people opposed to expensing options are looking for any way they can possibly find to support their position and raise concerns about expensing,” Dennis Beresford, who headed FASB when it took up the stock options issue in the mid-1990s, said about Barrett’s latest comments.
Initially, the tech industry argued that expensing stock options would force companies to curb options grants, which would hurt Silicon Valley employees. Lately, technology companies have pointed to difficulties in valuing stock options as the main reason they should not be expensed.
FASB, which has added a project on stock options to its agenda and Tuesday said it would focus on treating options as an expense, has said it will try to find a better way to value options, if possible.
