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Optional Fighting

Apr
5
2004

Finally someone in Silicon Valley is making sense about stock options. Netflix CEO and member of the California Board of Education, also a big Democrat, Reed Hastings tells the valley to give up already and start expensing options.
Hasting says, in a brief op-ed that’s probably gonna get him kicked out of the Friends and Family club of insiders who run the valley, that the option fight isn’t exactly grounded on sound business principles. After all, companies expense options for tax purposes. Why? Because it lowers their taxes. They don’t want to treat options as expenses on their corporate reports. Why? Because it lowers earnings.
Hastings, who used to run TechNet, the valley lobbying group that’s fighting hard to let companies expense options, has a pretty good political nose. He makes one observation – with options Silicon Valley is fighting for what it sees as its way of life – that’s dead on. That’s probably why California Controller Steve Westly is coming down on the side of the options expensers.
See, in Silicon Valley’s through-the-looking glass approach to the stock markets, options aren’t just a way to attract talent; they’re a form or unemployment insurance. They’re a way to give engineers and others a way to fund their next company. Options enable engineers, programmers and developers to go off for a few (unpaid) months or years and think; kind of like a professors’ sabbatical. Once they’ve thought, they can come back and (using more options) start a new company. It’s a way of keeping the best and the brightest in the neighborhood, not necessarily at a specific company.
What Silicon Valley really needs is a soup-to-nuts approach to the tax code; one for individuals, one for small companies. It needs to take all the things it wants and needs and figure out a way to wrap them up in a neat “new economy” package that it can send to Congress as a way to really get at what’s bothering everyone. It’s not options. It’s the freedom that options give people.

Share  Posted by Chris Nolan at 11:07 AM | Permalink

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