Mandatory Expensing of Stock Options: A Bad Idea Whose Time Has Not Come

October 1, 2003

Daniel Fisher

The corporate scandals of the last few years have dramatically altered the landscape of corporate governance. These scandals resulted in a rush by regulators and legislators alike to alter the existing regulatory framework, which was thought to have led to billions of dollars in investor losses. The scandals and the market losses they caused have been addressed by reform measures such as the Sarbanes-Oxley Act, enhanced New York Stock Exchange, NASD, and American Stock Exchange corporate governance standards, New York Attorney General Eliot Spitzer’s use of an obscure 1921 statute, the Martin Act, to launch a crusade against Wall Street, and SEC Chairman William Donaldson’s recently announced proxy rule changes. These actions have been in response to demand, of varying degrees of intensity, from the public and the investment community. However, like many previous sets of reforms, the test of whether the recent corporate governance measures will actually result in less corporate wrongdoing, or will merely force those wishing to engage in corporate wrongdoing to be more creative, will come over time.

Mandatory Expensing of Stock Options: A Bad Idea Whose Time Has Not Come