The debate whether stock option grants should be treated as corporate expenses is going badly for the tech world. As expected, FASB is recommending such treatment, so the tech companies are almost to the last ditch, which would be reversal of an FASB rule by Congress -- unlikely, in an election year dominated by demagoguery over evil corporations.

One reason for the defeat is that the tech companies seem to have misunderstood the nature of the fight. They assume it is really about accounting, and that if only they explain often enough that treating options as expenses will not in fact help investors then their opponents will relent.

Sorry, guys. The pro-expense 'em forces do not care about helping investors; they care about discouraging stock options.

In the modern corporation, intangible assets now constitute 70% or so of the value of the company, a shift from 25 years ago, when 75% of the value was in tangible assets. By using options, companies make the creators of these intangible assets into owners, and venture capitalists make the creative classes into partners. Options are a complicated, but quite creative, solution to a number of difficult problems in the valuation of intellect-based assets.

The idea of making the creative classes into owners is not welcomed by old line capitalists, organized labor, public employees, and other power centers. Hence the fight to discourage options.

If you think this view is paranoid, read the whole argument, which appeared in the Milken Institute Review (the deep link is here), along with an earlier background paper.

posted by James DeLong @ 11:16 AM | General

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