NEW YORK (CNN/Money) -
Watch out when CEOs start horning in on the opinion-mongering game: It's a sure sign they're straying from their core competencies.
Last week saw a prime example of would-be punditry from the executive suite in two op-ed pieces in the Wall Street Journal by Merrill Lynch's Stan O'Neal and Craig Barrett of Intel.
The next thing you know, they'll want regular columnist gigs. My (free) advice to them: Stan, stick to stocks, and Craig, save it for semiconductors.
Risk matters
O'Neal's screed was an odd ode to risk. Being in the securities business, O'Neal is pro risk, and his point is hard to refute: Without risk, the capitalist system wouldn't work. In his view, fellow CEOs ought to get off their duffs, get out from the under the rocks where they're hiding and start taking risks again.
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"Of course, in any system predicated on risk-taking, there are failures, sometimes spectacular failures," writes O'Neal. "But for every failure to be viewed as fraudulent or even criminal bodes ill for our economic system. The message to CEOs, to entrepreneurs and to venture capitalists right now is that you cannot afford to be wrong."
I'm not buying it. No, the real message is that if you make exceedingly stupid business decisions or, worse, commit fraud on your customers, you and your businesses will be punished. Worse, the admittedly short-sighted market has something of a memory and will remember what you've done.
In the case of Merrill Lynch, the public and its clients remember the dumb stocks Merrill analysts pushed. They'll forgive eventually and take risks again. But they might not make their bets with Merrill. Tough luck.
Options are a real cost
On the opposite coast, Intel's CEO weighed in on one of those issues that won't go away: stock options. To boil down an old, tired argument, Barrett argues that because it's impossible to value stock options correctly they never should be expensed on a company's income statement.
To this nonsensical assertion, Barrett adds an accurate observation: The current method for valuing stock options, known as Black-Sholes, stinks. Barrett argues that because Black-Sholes is so imprecise (and it is), asking CEOs to use it is tantamount to asking them to report "sort of" accurate financial results.
But the answer to the deficiencies of Black-Sholes isn't to abandon the topic altogether. If Barrett is going to put on his leadership hat, then the onus is on him to come up with a better solution, not simply to pooh-pooh the prevalent one.
Options may not be a cash expense, but they cost shareholders plenty. If a company uses the cash that belongs to its shareholders to buy back stock created by employee stock options, that's an expense. And the income statement should reflect it.
After all, there is an alternative: Stop using stock options and simply pay people for a job well done. (Disclosure: I have some unvested, in-the-money AOL Time Warner stock options and more vested, out-of-the-money options. I'd rather have a pension plan. So be it.)
Everyone's entitled to their opinions, even (especially?) powerful CEOs. But just being powerful doesn't make them right.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.
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