By: Michael Liedtke, AP Business Writer
(AP) Newspaper publisher Knight Ridder on Wednesday announced it barely fended off a shareholder proposal urging the company to expense stock options to provide a more accurate picture of its finances.
The San Jose, Calif.-based company said holders of 34.1 million shares followed its advice and voted against the advisory measure. Another 33.4 million shares supported the resolution.
Most shareholder proposals opposed by companies are trounced by wide margins.
This vote was so close that Knight Ridder management initially projected the proposal would win, but a surge of last-minute ballots swung the outcome.
It might be a short-lived victory, with political and shareholder pressure building for accounting reforms that would require companies to expense stock options.
The mandate “seems inevitable, from an investor standpoint,” said Patrick McGurn, special counsel for Institutional Shareholder Services. “Knight Ridder should be asking why such a substantial portion of shareholders wants the company to expense stock options.”
The issue has become a hot-button topic throughout corporate America.
Supporters say expensing options would mean more transparent accounting and force companies to recognize the now-hidden costs of stock options. Opponents insist it wouldn’t be fair to expense stock options until there is a better way to calculate their true cost.
More than 200 companies have voluntarily agreed to expense stock options, McGurn said. Shareholder resolutions supporting the concept have been presented at more than 120 other companies, McGurn said.
Proposals at U.S. Bancorp and Weyerhaeuser recently won majority support from their respective shareholders.
The fiercest opposition to expensing stock options is centered on Knight Ridder’s home turf, the Silicon Valley, where high-tech companies have made the awards a standard part of employee compensation.
Current accounting rules allow companies to limit their disclosures about stock option expenses to a footnote that estimates their impact on reported profits.
The fine print helps illuminate the Silicon Valley’s opposition — some high-tech companies have handed out so many stock options that treating them as an expense would trigger a major financial swing.
For example, Sunnyvale, Calif.-based Yahoo! Inc. would have lost $440 million last year, instead of registering a $42.8 million profit, had it been forced to expense stock options, according to the company’s annual report.
Knight Ridder wouldn’t be affected so dramatically.
Had it expensed stock options last year, Knight Ridder estimated its profit would have been $242.4 million instead of the reported net income of $257.4 million. The company had 10.4 million outstanding stock options at the end of 2002.