>When I arrived at the Securities & Exchange Commission in mid-1993,
>I found nearly all of Corporate America lined up against the "gnomes
>of Norwalk," otherwise known as the Financial Accounting Standards
>Board. The controversy raged over whether companies should treat
>stock options as an expense against earnings on their income
>statements, just as they treat salaries, bonuses, and other forms of
>compensation. Corporations insisted they should not, since no money
>actually flowed from company coffers. The FASB, the independent,
>private-sector body located in Norwalk, Conn., that sets accounting
>standards, said they should. To the FASB, options had real value to
>their owners, and involved real costs to shareholders. In June,
>1993, it voted unanimously to seek comment on a rule that would make
>companies put a fair value on their stock option grants and record
>that number as an expense.
> Corporate lobbyists, outraged by the FASB's perfidy, persuaded
>Congress to hold hearings. The pressure from Silicon Valley's
>high-tech companies, whose lack of revenues and weak profits made
>cash compensation difficult, was intense. Even the Clinton
>administration opposed the rule.
>Senator Joe Lieberman, the Connecticut Democrat who would become Al
>Gore's running mate in 2000, led the charge. He introduced
>legislation to bar the SEC from enforcing the rule. In addition,
>Lieberman wanted to strip the FASB of authority by requiring the SEC
>to ratify each of its decisions, in effect relegating private-sector
>standards to mere recommendations.
>Lieberman didn't stop there. He also sponsored a Senate resolution
>that declared the FASB proposal a cockamamie idea that would have
>"grave consequences for America's entrepreneurs." Joining him were
>numerous Republicans and a smaller group of so-called New Democrats
>who prided themselves for their pro-business positions, especially
>toward Silicon Valley, the fount of large campaign contributions. By
>saying that stock options were essential to one particular segment
>of the economy, they were arguing, in effect, that transparent
>financial statements should be secondary to other political and
>economic goals.
> While Lieberman's bill did not pass, his resolution did--by an
>overwhelming 88-9. Though it was nonbinding, it was an unmistakable
>signal that Lieberman had the votes to stop the FASB if it pushed
>ahead. I, too, was lobbied hard. In my first few months in
>Washington, I spent about one-third of my time being threatened and
>cajoled by legions of business people. I recall a discussion with
>Home Depot (HD ) Chairman Bernard Marcus, who became increasingly
>animated throughout our meeting, at the end of which he warned:
>"This will be a terrible blow to the free enterprise system. It will
>make it impossible to start up new businesses."
>The accountants also opened the campaign contribution spigot. The
>Big Five firms, individual partners, and the AICPA pumped gobs of
>money into the election coffers of Congressional candidates and the
>Bush campaign. Altogether, they gave $14.5 million in the 2000
>election cycle, according to the Center for Responsive Politics, a
>nonpartisan research group. The center lists the industry as No. 27
>in total contributions, out of 122 sectors it ranks. That puts
>accountants above the defense industry but below telecoms.
> Boy, did those donations get results. Not only could the AICPA
>get lawmakers to contact me on demand, it also persuaded the Senate
>Banking Committee's securities subcommittee to hold a hearing; its
>chairman, Minnesota Republican Rod Grams, had received $60,000 from
>the industry. (He would lose his reelection bid that November.)
> Accounting firms also got their clients to weigh in. In a
>September, 2000, letter, Enron Chairman Kenneth L. Lay said that
>Enron's use of Arthur Andersen as both internal and external auditor
>was "valuable to the investing public...given the risks and
>complexities of Enron's business...."
>Around this time, I received an ominous phone call from Senate
>Banking Committee Chairman Phil Gramm, who opposed the rule but who
>had a finely tuned sense of fair play. The Texas Republican warned
>me that his GOP colleague, Alabama's Richard Shelby, was preparing
>an "appropriations rider" to our funding bill that would bar the
>agency from spending taxpayer funds to enforce the rule. A similar
>rider was in the works on the House side. Gramm advised me to cut a
>deal with the accountants, or else the riders would pass.
> Alarmed, I called Senator Trent Lott, then majority leader, at
>home. I pleaded with the Mississippi Republican not to let this
>important issue be resolved by dead-of-night appropriations riders.
>"No matter what you think about the issue," I said, "the process
>should be aboveboard." I told him that such publications as The New
>York Times, Washington Post, and BusinessWeek had all endorsed the
>rule. "Well, Arthur," Lott said, "I'm not familiar with what you're
>proposing to do, but if those liberal publications are in favor of
>it, then I'm against it."