EDITORIAL: Coke shows substance in transparency stand, and willreap benefits

With the President again relying on rhetoric over regulation in last week's "strengthening the economy speech, it's good to see another leader take a more substantive stand on principled bean counting.

With the President again relying on rhetoric over regulation in last week's "strengthening the economy speech, it's good to see another leader take a more substantive stand on principled bean counting.

I refer, of course, to Coca-Cola chairman Doug Daft, who - doubtless buoyed by director and long-time supporter of such transparency, Warren Buffett - announced that Coke has decided to place a value on the stock options that it gives to its executives, and to show that value in its accounts.

Coke is not the first to take the stock option bull by the horns. Others who have recently announced the change include The Washington Post, Boeing, Winn-Dixie, Bank One, and AMB Property.

Nor, one hopes, will Coke be the last. After all, it is little short of deliberate deception to pretend that stock options are not compensation and, therefore, needn't be explicitly reported to investors as a potential expense to the business they're buying into.

Some corporations argue that stock options can be adequately accounted for in footnotes. But if that is so transparent, why do these same companies get so upset when they are asked to show the expense more prominently in the P&L report? Clearly they do not like the increased prominence, and feel there is something to be gained from shoveling this information into the small print.

What of the other argument that it dilutes profits, and that earnings therefore suffer? Duh! That's because those stock options are an expense and do dilute profits - which is why they should be shown that way. As naive as it might seem right now, it is worth remembering that the fundamental principle behind accountancy is to show the real value of a business at any given point in time.

The remaining argument then, would be that it is difficult to place a value on stock options. This always looked a fairly puny protestation given the wonders of modern accounting in valuing all kinds of tough-to-value assets, and Coke has now put this objection to the sword by finding a simple, clean approach to arriving at a value for options.

But Coke clearly didn't do this now simply because it was morally right.

It made the move - communicating it well, and positioning Daft as a poster-child for ethical accounting - because it saw the business benefit of having a management and accounting system that is trusted by investors, customers, and staff. Sure, it might cost Coke a little in terms of earnings this year, but the long-term buy-in from investors looking for a trustworthy option will far outweigh the negative short-term impact.

This early-mover advantage is available to other companies, and might be seen as a great PR tactic by those looking to restore trust in the system and benefit their own companies' long-term success.

But a word to the wise: Just about every communicator who spoke with PRWeek for this issue's feature on 'restoring trust' suggested that more honest CEOs needed to step up to the plate. They did warn, however, to check the closet for skeletons first. How right they were. Within 48 hours of Coke's announcement about accounting for expenses, The Wall Street Journal pointed out that the way it reports the earnings of its bottling companies is still questionable. Coke will still, largely, come out of this with its reputation enhanced, but the WSJ article took a little fizz out of this brilliant bit of PR.

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Register
Already registered?
Sign in

Would you like to post a comment?

Please Sign in or register.