[Woodruff:] Senator Carl Levin, thank you very much for joining us. Senator, I'm talking to you, the markets have about an hour to go before they close. But given the volatility today, given the fact the Dow was down over 400 points at one point today, what is going on?
[Sen. Carl Levin , Michigan:] I think the public is very much concerned about the credibility of our corporate financial statements and whether they have had honest accounting. And they are not sure when the next shoe is going to drop. And so it is very, very important that we act and act sensibly, act confidently, but then we correct some of the real distortions that have existed and we fill in some of the holes that have been dug by some of the deceptive practices, by the corporate managers and corporate board of directors and those corporations who have abused their duties.
[Woodruff:] One of the things you are trying to do today, senator, is get the Senate to agree to counting stock options as expenses, that corporations would be required to do this. You tried to do this years ago. It didn't work. Do you think you are going to get it done today?
[Levin:] What we are hoping to get done is to ask the financial standards accounting board or Financial Accounting Standards Board, FASB, to review the current rule which provides stealth compensation for corporate executives, which allows corporate executives to vote themselves huge amounts of stock options, to get a tax deduction for the corporation for them and not show that as an expense, a compensation expense, on the corporate books this. And this is something which the standards boards wanted to correct many years ago. The executives weighed in very heavily with huge pressure to stop them from doing what they wanted to do, and Congress weighed in and stop them. And we are just trying to say, hey, we should not have intervened politically. It is a mistake. We want you to review this matter and come up with the appropriate standard within a year.
[Woodruff:] Senator, you know one of the arguments being made by the Business Roundtable, the U.S. Chamber of Commerce, is that if this were to happen, it would cause corporations in a short period of time, frankly, to cut their bottom line, to cut their profit picture, and this at a time when the corporate America is already on very shaky ground.
[Levin:] The investors groups want honest accounting. They want the stock options that have been given to the executives mainly in such huge amounts to show as an expense, because it is compensation. If it's compensation, it ought to be treated like other forms of compensation. And it is the distortions that have created the problems with the accounting, and what the investors groups, the major investor groups, organizationally want honest proper accounting for stock options, and the only way you are going to get that is if the accounting standards board reviews this matter and adopts the correct standard.
[Woodruff:] And what do you say to your fellow Democratic Senator Joe Lieberman who says it's not all stock options that are the problem, it's just a few people who handle them unethically and abuse them?
[Levin:] Stock options have a place, but they ought to be honestly accounted for. The issue here isn't whether there is a role for stock options; the question is whether they ought to show up on the books as an expense like all other forms of compensation. That's the issue. There is no other form of compensation, including stock bonuses, which does not show up as an expense on the financial statements of corporations. This is the only exception. As a result, you've got over half the compensation now of the executives, top executives of major corporations is in the form of stock options, which doesn't even show up as an expense. You talk about distorting the bottom line. It's the absence of a showing of compensation expense which distorts the bottom line. Enron gave out huge amounts, and so do other corporations, and that's a distortion.
[Woodruff:] Senator Carl Levin. We appreciate it. Good to talk to you.
[Levin:] Good being with you, Judy.
[Woodruff:] Well, Democratic Senator Joe Lieberman, as you just heard, has long opposed the requirement that stock options be counted as corporate expenses. Senator Lieberman joins me now from Capitol Hill. Senator, what about the point made by Senator Levin and others that it just distorts the picture of what's really going on in a corporation, not to count these stock options as compensation for top executives?
[Sen. Joseph Lieberman , Connecticut:] I don't agree. It is compensation, but it has no value until and unless the options are exercised. On the day they are granted, which is when Carl and others want to take the value or the market price off the bottom line of the company, they have no value because they are not being traded. And look, stock options are a good idea that have given 10 million Americans, mostly middle income people, a piece of the companies that they work for. But there are now, we know, a group of greedy, unethical corporate executives who abuse the idea, and we've got to take action to stop them from ever doing that again. But I think if you expense stock options as Carl wants to do, the net effect is that the big guys, the CEOs are still going to take care of themselves and they won't give stock options to everybody else working for them. So I think what we ought to do is not let executives give themselves options, but require option plans to be approved by the board of directors, and we ought to force the executives to hold those options for a long time, so that they don't have an incentive to fool around with the books, sell exercise their options and then leave the company.
[Woodruff:] Well, let me ask you about that. You say so many of them go to middle income people, but our research shows that 70 percent of stock options go to managers, 50 percent of them to senior executives. Isn't this really a perk for people at the highest levels of these companies?
[Lieberman:] OK, I'm not exactly familiar with those numbers. My guess is the 70 percent must be the value of the dollar value, which is relevant, and it does include not just the top executives but a lot of middle managers who are middle-class people who deserve an opportunity to build up a little wealth. The the fact...
[Woodruff:] But are you, but, senator, are you saying it is an honest picture after corporation's profit and loss not to record this as compensation?
[Lieberman:] Judy, I'm saying two things. The compromise that the accounting board worked out in 1994 was that if you want to know how many options are out there potentially to be exercised, they require companies to state that on a footnote, which is clearly legible in every every report that comes out from every corporation. But here's the practical problem. Apart from the idea that it's great for people working for a company to get a little of its stock, the practical problem is if you force a company to expense options when they are granted, that means that's money taken off of their profits. Their quarterly profits are what they live and die by. The net effect, I think, will be that there will be fewer options and again, the options will still go to the big guys and not everybody else in the company.
[Woodruff:] Senator, one other question. You said yesterday in an interview that the United States economy will suffer unless President Bush and Vice President Cheney release the details of their actions when they were corporate executives in the private sector. What exactly are you asking the president do?
[Lieberman:] Yeah, Judy, there is obviously a lot of factors at work in weakening the economy. Most of important of which right new is the lack of trust in corporate reporting. We've got a president and a vice president who unfortunately were each involved in situations that look a lot like what now ails the American economy. We need leadership from them, not only to support bills like Senator Sarbanes' bill on the floor of the Senate, which the president still has not done, but we need them to have a moral authority that they don't have if they don't fully disclose what happened in each of these cases. The media, politicians will continue to be on them. There are documents about the Harken Energy case in which President Bush was involved that the SEC will not release without his permission. He has not given it. The president has said to reporters at his press conference last week, go and read the minutes of the Harken Energy board of directors. Reporters tried to do that, and Harken won't release those minutes. Vice President Cheney has simply said nothing about the Halliburton case, whereas Halliburton a spokesperson I saw in the media the last couple of days said that, you know, he was the CEO of the company, he knew what was happening. They ought to disclose, and if they feel like they made a mistake, they ought to say so, and we will go on from there.
[Woodruff:] All right. Senator Joe Lieberman, thank you for talking with us.
[Lieberman:] Thank you, Judy.
[Woodruff:] We appreciate it. Well, in addition to Senator Lieberman, where do the possible Democratic presidential candidates stand on these proposals to expense stock options? We were not able to get a response from Al Gore's camp, but Senator John Kerry and Vermont Governor Howard Dean say they support the idea. As you just heard, Senator Lieberman opposes it. We are also told that Senator Edwards and House Minority Leader Dick Gephardt have taken no position on the issue. A plea deal for the American who fought with the Taliban. Details coming up in our "Newscycle." Plus, the big sell-off and the last-hour recovery of Wall Street. Are the news media overplaying the story? One of the topics ahead in our "Taking Issue" segment.