In an interview with CFO Magazine, Greg Mankiw makes some pleasingly frank comments:
On stock options…
On the stock-options issue, were you surprised that expensing was delayed again?
I’m of the view that eventually stock options should be expensed. But to me the issue is not should they be expensed, but how should they be evaluated…. I think the high-tech community has done itself a disservice by fighting the wrong battle — over whether they should expense, rather than over the valuation formula.
So you don’t buy the argument that expensing will hurt the Silicon Valley economy?
What they’re basically arguing against is accurate accounting. When a company says accurate accounting will hurt the company, I say, “Well, if it is, it should.”
The other issue CFOs are dealing with is Sarbox compliance. Many argue that the costs exceed the benefits. Do you agree?
A lot of this debate comes down to the role of corporate capital. Corporate capital is in some ways an astonishing institution, built on this idea that shareholders will voluntarily give their money to people they’ve never met and expect those people to protect it and maximize its value and give returns with a profit. What Sarbanes-Oxley tries to do is provide some balance between protecting shareholders and instituting regulations that aren’t so overwhelming that [they deny managers the time to] maximize shareholder value.
I’ve talked to enough CEOs in the past few years to strongly suspect that Sarbanes-Oxley went a bit too far. At some point, [Congress] may want to look back and ask, How do you strike this balance?
A lot of companies are hoping that will happen sooner rather than later.
They should be careful what they wish for. It’s true that Sarbanes-Oxley is far from perfect, but they shouldn’t compare it to what’s ideal; they should compare it to what Congress would do next.