Bush is blamed for passive attitude on the restriction of stock option

Shock of Stock Option= Enron, Global Crossing, WorldCom, etc are under bankruptcy or critical situation financially, but the CEOs made a lots of money by practicing after having increased the price of the stocks. CEO of Enron made 112 million dollars by selling the stocks just before the bankruptcy. CEO of Tyco made 240 million dollars by selling the stocks just before being dismissed. As the fraud accounts being disclosed, the CEOs had already finished up, and other investors and financial institutes were damaged.

Stock option is a right for a CEO to purchase a certain amount of stocks at low price and to sell at high price if the price of the stocks rise. It is a device to share the business performance to CEO as well to encourage the management.

However, as the scandals show, the device changed in the purpose, and CEO can make a lot of money if he/she raises the price of the stocks even if the business suffers difficulties.

New Times indicated that stock option; ▽makes CEO emphasis on short-term performance and the prices of the stocks, ▽deducts business profits in long-term because it is not recorded as expense, ▽impacts on the government revenue and the economy because it is subject to tax reduction.

Economic weekly magazine `Business Week` reported; ▽The rebellion of stockholders= many stockholders tend to be against stock option that excesses CEO`s management contribution. The reject rates of stock option were 16.2% in 1995 and it increased to 23.4% last year. Johns Apparels withdrew the plan to grant a large amount of stock option to CEO because the stockholders opposed sternly.

▽Dispute about the handling of stock option in accounts= generally stock option is not recorded as expenses. A information and research consultant, Standard & Poor`s announced in May stock option CEO receives as remuneration is a kind of continual business activities, so it should be included in expense account. According to our calculation on 500 corporations in 2000, stock option reduces 95 of net profits.

Business Week reported, International Accounting Standards Board (IASB), that is located in London and establishes international accounting standards, proposes a new guide line for handling stock option. However US corporations are opposite strongly.

Allen Greenspan, the Chairman of Federal Reserve Board, agrees to handle stock option as expenses as well. The minister of Department of the Treasury of US disclose d personal opinion to classify as expense when practice stock option. A professor of University of California Barclay said handle stock option as expense through several years will be better to reduce the burden of business from a large amount expenses at once. Some senators of Republican and democracy insist, business should handle stock option as expense for receiving tax reduction and have submitted a bill. However, the President Bush who is for large sized business is pending the bill.

konihong@donga.com