The Politics of Envy
Inside Liberty Watch Today - January 15, 2007
By Doug French
While the financial press crows about the new highs being set in
watered down dollar terms by the Dow Jones Industrial Average, the politics
of envy are in high gear. In this post-Enron age, the rule makers in
Washington are doing their best to make headlines and win votes claiming
to make investing safe again for the average dim-witted
shareholder.
But what these regulations really do is drive entrepreneurial talent
away from public companies, competition is reduced for large firms,
wealth is less widely distributed, corporate boards are made stupider, and
petty bureaucrats are elevated to management positions. This ultimately
will leave shareholders with fewer and poorer performing investment
choices.
First there was the Sarbanes-Oxley Act of 2002 that provides for a
thicket of self-monitoring rules. "The closer you look at Sarbanes-Oxley
the more you realize it is perfectly designed to crush new business
creation," writes Michael Malone in The Wall Street Journal online. The
average cost of implementing Sarbanes-Oxley is $3.5 million according to
Malone, not a big deal for big companies, but a deal killer for
start-ups.
The demonization of stock options also puts the kibosh on innovative
start-up companies. The Financial Accounting Standards Board has
implemented rules that force companies to expense the value of stock options
that are used to attract talent from top to bottom in new and existing
organizations. These regulators point to the Frank Quattrones of the
corporate world as reason to implement the new rules.
But while the regulators haven't stopped executives from receiving
options, they have very effectively made it too expensive to hand out
options to all rank-and-file workers. The number of millionaires working at
(or retired from) Microsoft is legendary. More average Joes and Janes
were made wealthy through stock options than by any other means in
recent years. As Malone points out: "The great stories are not about a
Steve Jobs becoming a billionaire, but about his secretary becoming a
millionaire."
Mr. Jobs is now caught of in the scandal de jour of possibly receiving
backdated options. Millions of man-hours are now being spent scouring
option records at public companies in a witch-hunt to determine if
executives received the benefit of beneficial option pricing. These
"unproductive vultures of corporate democracy and securities regulation" as
Thomas G. Donlan of the Barron's so appropriately labels them should
cease and desist. They do nothing but harm to shareholders and the US
economy.
The typical investor can buy a share of a company with a simple phone
call or the click of a mouse. That same investor can sell the share
just as quickly. This passive investment requires nothing of the investor
but money. The shareholder didn't create anything, but owns "a ticket
to ride on the ship that others have built, others navigate, others
load, others steer," Donlan explains.
Doug French, Liberty Watch Columnist
Liberty Watch On-Line
3111 S. Valley View
Suite B-109
Las Vegas, NV, 89102
Phone: 702-385-3320
Fax: 702-385-5488
