U.S. Financial Circles Lobbying Against the Restriction

U.S. financial circles are opposing to the Congress` movement to restrict stock option (right to buy or sell specific securities).

Wall Street Journal reported on the 26th that some 30 CEOs of U.S. major companies met at the office of prominent database company Oracle to protest against the restriction on stock option on the 19th last month, and 40 CEOs from across the country flew to Washington D.C. for lobbying.

The fundamental problem, however, is the accounts. U.S. Senate is discussing passing the restriction bill, which takes stock option for expenditure. When stock option is counted as expenditure, net profit becomes much smaller. CEO of Oracle Larry Ellison, who is a leading opposer to the restriction, earned 706 million dollars (around 920 billion won) just by stock option last year. Expert pointed out that if the stock option had been dealt with for expenditure, pure profit would have become smaller, and stock price would have decreased.

In fact, this issue is one of the pending issues of accounts, which were raised 30 years ago, but U.S. enterprises have insisted that they cannot treat stock option as expenditure as it costs nothing to bestow stock option.

But economist Myron Samuel Scholes found out the formula that enables to convert stock option into expenditure in early 1990s that the urge above became illogical. Scholes won the Nobel Prize of economic science by this formula.

A legendary investor Warren Buffet and Alan Greenspan chairperson of the Board of Governors of the Federal Reserve System (FRB) are leading the insistence on `expenditure stock option. ` Institutional investors, who should welcome stock option to increase the stock price, are standing by the group opposing to stock option. That`s because when they would receive stock option, managers are inclined to drop the price of stock so that they could buy stocks at low price.

The voices apposing to stock option are so high, but the fate of the restriction bill cannot be concluded hastily, as enterprises have powerful talent of lobbying, said Wall Street Journal.

Eun-Taek Hong euntack@donga.com