Getting in FASB's Face Over Options

The winds of change are blowing in the direction of Starbucks (SBUX Quote - Cramer on SBUX - Stock Picks), and they aren't carrying the aroma of founder Howard Schultz's favorite brew.

The cafe chain's shareholder meeting could be host to one of the first dust-ups between management and shareholders over the issue of whether companies should expense stock options. A shareholder proposal, put forth by the United Brotherhood of Carpenters Pension Fund, would recommend that Starbucks take the controversial step.

The proposal before Starbucks shareholders is part of a broader public effort by a group of unions pushing for change in companies' accounting of stock options, said Ed Durkin, a spokesman for the carpenters union, which has about $38 billion invested in its various pension funds. As longtime activist investors, the unions have targeted more than 100 companies to press the issue and to bring it in front of the Financial Accounting Standards Board, which may consider a rule this year, he said.

"We took a pretty hard hit due to the shenanigans of Enron, WorldCom and the rest," Durkin said. Arguing that stock options were a key motivator in the corporate scandals at those companies, he added, "Our members lose their retirement benefits when these companies perform this way."

An Old Dispute

Stock options have been a target of corporate reform for years. Critics have blamed options for encouraging corporate executives to take the financial shortcuts that boost stock prices over the short run without respect to long-term shareholder value. Prominent investors such as Warren Buffett also have argued that options dilute shareholder value and should be expensed as compensation.

Current accounting standards allow companies to choose how to account for options. At most, companies merely have to mention their hypothetical expense in a footnote in their quarterly and annual reports.

While the Sarbanes-Oxley bill dealt with other accounting issues, Congress left the issue of whether companies should be able to ignore options expenses in their income statements open to debate.

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