Coca-Cola's shift in accounting practice attracts positive press

ATLANTA: The Coca-Cola Company grabbed headlines last week by becoming the first major public company to announce that it was heeding calls for reform, and abandoning a widespread but controversial accounting practice.

ATLANTA: The Coca-Cola Company grabbed headlines last week by becoming the first major public company to announce that it was heeding calls for reform, and abandoning a widespread but controversial accounting practice.

Coke agreed to begin listing the stock options it doles out to its employees as an expense on its quarterly earnings statements. Current accounting rules do not require this treatment, but many vociferous reformers have been arguing that not expensing stock options has allowed companies to hide from shareholders the true cost of many executives' enormous compensation packages, and mislead investors about many companies' actual financial condition. Stock options allow employees - usually high-level executives - to purchase shares in their employer at rates below market prices.

The move garnered Coke an extraordinary amount of positive publicity at a time when much of corporate America is under criticism.

Nevertheless, Coke was reluctant to gloat. "We felt that we were making the right decision, and we were doing the right thing, said Kari Bjorhus, director of financial communications. "The fact that it got a lot of attention was great, but we didn't make the decision to get coverage; it just happened at a time when there was tremendous interest in the topic. Sometimes you get the kind of attention that we got for doing the right thing."

Indeed, numerous market commentators, such as straight-shooting billionaire Warren Buffett (who sits on Coke's board of directors) and Federal Reserve chief Alan Greenspan, praised the firm's decision. Several companies, including Bank One and The Washington Post Company later announced they would follow Coke's lead.

Some say Coke has benefited by being first to change its accounting practices voluntarily.

"We've been saying for a long time that companies that come out and act first on these matters enjoy what used to be called first-mover advantage, said Hollis Rafkin-Sax, head of Edelman Worldwide's financial communications practice. "With that come all the benefits that go with being there first."

See Editorial, p.8.

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