NEW YORK and SEATTLE: One of the nation's largest institutional investors ratcheted up the pressure on corporate America to embrace accounting reform last week, while Amazon.com became the first technology or internet company to move voluntarily toward reform.
TIAA-CREF, which manages nearly $275 billion in assets for workers in the fields of education and research, sent a letter to the chairmen of nearly 1,800 publicly traded companies urging them to begin accounting for stock options as an expense. The letter pleads with companies to follow the lead taken two weeks ago by the Coca-Cola Company, which became the first to announce it would expense employee stock-option awards against its earnings as a compensation expense. While current accounting standards do not require that companies give options such treatment, many feel that the current method is an unfortunate loophole.
"(The current treatment) is, of course, a fiction, since awarding an employee the right to buy appreciated stock at a discount causes real value transfers from shareholders to employees, with real costs to the company, reads the letter from TIAA-CREF CEO John Biggs. "Perhaps even more distressing, it encourages excessive - in some cases even profligate - use of options, and impeaches the credibility of financial reports."
The move by TIAA-CREF is the latest sign that institutional shareholders could be ready to help lead the push for corporate and accounting reform.
Amazon.com announced that it would expense stock options by 2003, a move that analysts see as motivated equally by PR and finances. The online retailer made the announcement last week when it posted second-quarter results.
"Considering all that's going on right now, this is a smart move, said Lisa Melsted, internet business strategies analyst with The Yankee Group.
"In the long run, it will make them look better. Right now, timing is everything. From a market-position standpoint, it's strategic. So many companies are taking huge hits for not having done things like this, so they look like they are going out on a limb. It's a perception play."
See Market Focus, p.35.