MBA vs. CA – which is better?

Here’s an interesting article that discusses why an MBA is better than a CA. The article is from India but I think a lot of it is transferrable to Canada. Not that I agree with the author in any way – in fact, she is completely and utterly wrong in every available aspect.

Her main reason is that MBAs rise to CEO, whereas CAs rise to CFO.

The reason is simple: being CEO is about vision and leadership. This would require you — at times — to take a leap of faith, even when the numbers are against you. For example, you diversify into a new area of business. This may mean investing a lot of money, literally burning cash in the initial phase. It may look very bad on the balance sheet for a while, but there is a gameplan and eventually it pays off.

The author must, therefore, be contending that leadership and vision are teachable quantities. How else would all MBAs be blessed with such traits but through the always arduous path of study through Masters programs?

Apparently case based study in grad school will endow one with foresight and the courage to use it, but self-directed case based study under the CA program teaches one to look only to the numbers and the immediate effect on the balance sheet.

This is wrong. In any case I’ve written, you have to argue both sides to every issue and reach a reasonable conclusion, keeping the needs of the client first and foremost in mind.

Weighing qualitative and quantitative considerations are critical to writing a competent, well-rounded case response. Keeping the company’s strategy and critical success factors in mind will guide your response and frame your recommendations.

The truth is you can’t look at the letters after one’s name to determine how far they will go in their career. It’s an individual thing. Key is what one does with the credentials after they’ve earned them.


Novell investigating its options grants

Another tech company has announced it is conducting internal investigations into their options grant practices. This time it is Novell, a company known for its NetWare network operating system and more recently as a Linux company.

Novell said its audit committee began the investigation because of news about irregularities in the way that dozens of other companies accounted for stock options grants.

So it appears that Novell’s corporate governance has identified the need to and benefits of resolving any doubt about the company’s options accounting. Tech companies are the most frequent user of options as a form of compensation and have been the primary focus of the SEC investigation.

Options have to be accounted for at fair value on the date granted. If the options are granted in the money, the company must recognize the expense as being the difference between exercise and market price times the number of options granted.

So in the case of options abuses, the options were granted in the money at a certain date, then backdated to when they were out of the money, thus allowing the company to avoid reporting the expense while giving management options that are already in the money.

Stock options have been used as compensation in order to better align the interests of management and shareholders. Shareholders want the stock to go up, so options should guide management in making decisions that increase the stock price.

From a compensation standpoint, backdating makes sense. To reward a manager for doing well in the past year, you could give options dated at the beginning of the year so the manager can take advantage of the increase in the price during the year.

This ignores the more long-term outlook taken by shareholders, however. As well, sound management decisions this year will lead to stock price increases in future years as the benefits accrue over multiple years from, for example, deciding to upgrade to more modern and efficient equipment that decreases costs over its useful life.


First options backdating investigation initiated by SEC

Brocade Communications Systems has become the first company to be formally investigated by the SEC regarding the recent options backdating issue.

According to the SEC’s complaint document, which names three former executives of the company as plaintiffs, from 2000 through 2004 the company inflated net income by understating their options-related expense through fraudulent schemes to backdate options.

Under US GAAP, options granted with an exercise price higher than the current market price did not need to be expensed, but options granted with an exercise price lower than the market price (known as “in the money”, or as I like to call it – instant profits) must be expensd.

So, Brocade is alleged to have granted in the money options to their execs and backdated them to when they were “out of the money”, in order to avoid the expense while allowing the executives to reap instant profits.

I’m going to have a post in the near-future where I outline current Canadian GAAP related to stock-based compensation, so stay tuned for that gem!


Now that’s a severance package!

Departing Senior VP and General Counsel Timothy Stevens of Borland Software has worked a deal whereby he gets to keep the “Company-issued laptop computer, monitor, printer and docking station used by Executive prior to the Separation Date together with the related loaded software, accessories and power cords.”

If I left my firm I wouldn’t want to keep the laptop! My personal laptop is so much better, faster and newer! Of course I’m just a junior so I get the old equipment. Partners and senior managers have nice stuff.

Good thing that dude remembered the power cords though… Can you imagine him getting home with his kit and then just realizing he had to go out and buy a power cord with his paltry $130,000 severance payment?


SEC looking into auditors in options backdating investigation

The SEC has announced it’s going to be including companies’ external auditors in their investigation into options timing abuses commonly known as backdating.

Authorities were said to be looking at what auditors knew about company manipulation of options’ grant dates and exercise prices to boost their value to executives who got them. About 30 companies are known to be involved in the largest multi-agency probe into corporate wrongdoing in two years, with fraud and insider trading charges seen as possible outcomes.

The SEC typically expands its investigations beyond corporate executives immediately involved to look at auditors, directors, lawyers and others who may have known about the misconduct or been in a position to halt it.

Ah, corporate governance. The hot topic gets hotter. Corporate governance to Chartered Accountants is basically an issue of organizational effectiveness. Audit committees doing their job. Boards doing their job. Everything running smoothly from a company’s health point of view. But when securities regulators are involved, it’s all about making sure they didn’t let the executives get away with something that isn’t in the investors’ best interests.

Backdating involves retroactively dating the grant and exercise price of an options issue to precede a rally in the underlying shares, maximizing option profits for executives. The practice can pose disclosure, tax and accounting problems.

Spring-loading involves looking forward to set the grant date and exercise prices ahead of the release of positive news expected to raise share values, also boosting option profits.

Originally I’d thought the issue with backdating was reducing their value at the grant date, thereby reducing the expense the company reports on their income statement. But I guess I was wrong. It is apparently even more insidious than boosting the company’s profits! This is about putting more cold, hard cash in executives’ pockets.

(Via the AAO Weblog.)