September 12, 2003

At a Wednesday meeting, the

At a Wednesday meeting, the FASB decided to delay rulemaking to expense options by six to nine months and hinted that it might use a model other than Black-Scholes. Board members argued over whether the valuation of stock options should be based on the contractual life of the option or the time period until the option expires.

Originally, the FASB hoped to propose rules by the end of 2003, but have now pushed back the target date to the first quarter of 2004. It hopes to adopt rules now in the third quarter of 2004. So far, over 350 companies have voluntarily stated that they will – or are – expensing stock options (albeit using different methodologies).

More evidence that some CEOs still don’t quite get it. For $10 million, AIG settled an enforcement action with the SEC yesterday for marketing and selling an “income smoothing” insurance product to a public company. The SEC staff blasted AIG for not initially cooperating and sure enough, AIG’s CEO criticized post-Enron regulatory initiatives as going too far in his acceptance speech for “CEO of the Year” back in July (see page A3 of today’s WSJ). AIG is the largest provider of D&O insurance by far.

And don’t get me started about the NYSE’s governance structure. True, its not a public company but it does have all the earmarkings of a poster child for bad governance. A CEO who handpicks the board – and the compensation committee. A compensation committee who approves CEO compensation arrangements that it doesn’t understand. A compensation committee comprised principally of CEOs from companies that have inherent conflicts of interest with the CEO by virtue of him being their regulator.

And finally, as noted by Nell Minow at the Business Roundtable panel on governance two days ago, the worst compensation committees are those that include CEOs from other companies. This is because these CEOs have an interest in perpetuating the cycle of mindblowing levels of compensation as compensation consultants primarily use benchmarking to advise about CEO compensation levels. The NYSE’s compensation committee appears to solely consist of CEOs – and quite a few at that (6 or 7 as compared to 3-4 comp committee members at a typical public company; this is because the NYSE board has dozens of members, a governance “no-no” itself).

I caught up with Nell after the BRT panel and we have posted an interview with Nell Minow on the Status of Governance Reform.