Contact:
Alan Oshiki
Broadgate Consultants, Inc.
203-232-2222
INSTITUTIONAL INVESTORS SUPPORT FASB
OPTIONS EXPENSING PROPOSAL Buy Side Portfolio Managers Research Professionals Oppose Exemptions,
saying new rule will improve transparency
NEW YORK: A survey of institutional investors indicates that a vast
majority back the proposal issued recently by the Financial Accounting Standards
Board (FASB) that would require all public companies to list stock options as
an expense in the income statement.
By a four to one margin, the 300 buy side portfolio managers and research professionals
surveyed by Broadgate Consultants, Inc., said they believe the FASB proposal
will improve transparency in financial reporting, and more than 70% said they
thought the rule would improve corporate governance.
More than three quarters (77%) of respondents said the FASB proposal should
be not be modified. Almost 85% of respondents said they were interested in the
options expensing issue because GAAP accounting is an important consideration
in their decision to invest.
"For many years options have been silently devaluing shareholder equity.
Now, the FASB is saying "Stop" and institutional investors are agreeing,"
said Thomas C. Franco, Chairman and Chief Executive Officer of Broadgate Consultants.
"This survey essentially validates the market's view that financial statements
should reflect a true and accurate picture of what is occurring in a company's
performance."
An overwhelming majority -- 90% -- of respondents said they are opposed to
any exemptions from the options expensing rule for “start-ups” or
technology companies. Only 6% of respondents said they favor such exemptions.
In addition, more than 80% of respondents do not believe that the options expensing
requirement will impair a company’s ability to attract top management
talent, harm their profitability or impede their ability to attract capital.
A majority of respondents -- 58% -- said they are satisfied with the way the
FASB went about writing the proposed rule and believe FASB carefully weighed
all points of view before reaching a decision.
On a related issue of whether U.S. public companies should conform to international
accounting standards (which also require options expensing), respondents are
of two minds: Just about half favor conformance, while 30% are opposed, and
21% are not sure.
When it comes to details of how the new rule should be applied, respondents
showed more divergence of opinions:
1. Respondents were split as to whether expensing stock options would complicate
comparisons of historical financial performance of public companies. Just over
half disagreed that it would complicate comparisons, while 39% agreed and 10%
were not sure.
2. Survey respondents were also divided on what method companies should use
if companies do expense options. One-third of portfolio manager were not sure
what method should be used, while another third believe the FASB recommended
Binomial Lattice should be used, and 20% believe Black-Scholes, or some variation,
should be used.
3. Nearly 60% of respondents said they do not think that companies should abandon
stock option plans altogether, in favor of other alternative forms of compensation,
such as “stock appreciation rights.”
About Broadgate Consultants, Inc. Established in 1987, Broadgate Consultants, Inc. provides strategic corporate
and capital markets communications advisory and implementation services to public
companies and private equity firms and their portfolio companies. Its clients
include global public companies as well as private equity firms with assets
under management ranging from $100 million to more than $5 billion. The firm
is also recognized for its crisis management services and is a partner firm
of Public Relations Organisation International, a global network of independent
public relations firms. More information about Broadgate can be found at www.broadgate.com.
