The Turnaround Artist Answers Readers

Question: Please elaborate on why you think the FASB battle is over. Was there a press release?

Answer: Yes, there was a press release: Microsoft's (MSFT - commentary - Cramer's Take) announcement Tuesday that effectively ended, in my opinion, any chance that Congress had to stop the Financial Accounting Standards Board from requiring the expensing of options. Sen. Barbara Boxer (D., Calif.) and Sen. John Ensign (R., Nev.) had a slim chance at the outset of defeating the FASB ruling. Now that Microsoft is on board with its options decision, look for the anti-FASB politicos to gradually fade away.

Question: I love your comments on corporate governance. I worked for [a famous money manager] for years as the in-house attorney. Corporate governance came under my supervision. Too many times I got phone calls from CEOs of companies who were also clients, wanting to know how we were going to vote -- more to the point, were we going to vote for their stock option plans?

-- S.M.

Answer: My guess is that this experiment in compensation called stock options -- what I've called corporate America's dirty little secret and a bubble within a bubble -- is close to complete collapse. Maybe it won't happen for another year or two, but the fleecing of shareholders, on this issue at least, is close to over. With FASB's requirement to expense options a fait accompli for 2004, it will be too difficult for companies to use options and still meet earnings expectations.

Question: If a company issues an option to an employee and that company is required to retain one share of stock on account to cover each option granted, then all this brouhaha about expensing options is noise. I guess my engineering background prevents me from understanding the finer points of accounting. What am I missing?

-- J.B.

Answer: Think pie. Sure, companies have additional shares ready to issue to back stock options. But that creates more shares, or more slices to the pie. So the other shares are worth less.

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Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor and portfolio manager of The Turnaround Fund, a no-load mutual fund. At time of publication, Alsin and/or ACM was long Washington Federal, PNC and Bristol-Myers, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to [e-mail]. Click here to receive Arne's latest favorite stock picks from his newsletter, The Turnaround Report.

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