Michael Enzi

Mr. ENZI

Mr. ENZI. Thank you. I have a more extensive speech, but I will limit my remarks so that the Senator from North Dakota will have his full time.

Mr. ENZI. Mr. President, how much time remains on our side?

Mr. ENZI

Mr. ENZI. I thank the Senator. Mr. President, some of the issues that did not come up in this bill dealt with FASB. We did something marvelous for FASB. We made sure of its independence. One way we made sure of its independence, besides citing in the law, was to make sure FASB has independent funding. They will not have to come to Congress with a budget. And they will not have to go to corporate America for funding. They will get independent funding to be able to do the job they need to do. That will inhibit us from trying to change what they are doing in setting accounting standards. I am pleased to state that we have taken a look at the things they are working on right now. They are working on four issues that are extremely important to make sure what happened with other companies will not happen again. I have to tell you, in those four things they have listed as a priority, one of them is not stock options and what to do with them. They do need to address that, but I certainly hope that Congress does not decide that what we see as a problem does supersede other problems that may have caused collapses such as Enron's. So I hope we will not get in a position of dictating now to FASB what they should be working on, and in what order, and to what degree, or, worse yet, just going ahead and passing accounting standards on our own. With respect to section 302, the conference recognizes that results presented in financial statements often necessarily require accompanying disclosures in order to apprise investors of the company's true financial condition and results of operations. The supplemental information contained in these additional disclosures increases transparency for investors. Accordingly, the relevant officers must certify that the financial statements together with the disclosures contained in the periodic report, taken as a whole, are appropriate and fairly represent, in all material respects, the operations and financial condition of the issuer. I also believe the conferees contemplate that the Board will have discretion to contract or outsource certain tasks to be undertaken pursuant to this legislation and the regulations promulgated under the Act. The Board may outsource functions which can be done more efficiently by existing and established organization. An exercise of discretion in this manner does not absolve the Board of responsibility for the proper execution of the contracted or outsourced tasks. I also believe that the Conferees expect that the Board and the standard setting body will deem investment companies registered under Section 8 of the Investment Company Act of 1940 to be a class of issuers for purposes of establishing the fees pursuant to this section, and that investment companies as a class will pay a fee rate that is consistent with the reduced risk they pose to investors when compared to an individual company. Audits of investment companies are substantially less complex than audits of corporate entities. The failure to treat investment companies as a separate class of issuers would result in investment companies paying a disproportionate level of fees. In addition, I believe we need to be clear with respect to the area of foreign issuers and their coverage under the bill's broad definitions. While foreign issuers can be listed and traded in the U.S. if they agree to conform to GAAP and New York Stock Exchange rules, the SEC historically has permitted the home country of the issuer to implement corporate governance standards. Foreign issuers are not part of the current problems being seen in the U.S. capital markets, and I do not believe it was the intent of the conferees to export U.S. standards disregarding the sovereignty of other countries as well as their regulators. I also realize inconsistencies appear in sections 302 and 906. The SEC is required to complete rulemaking within 30 days after the date of enactment with regard to CEO certification under section 302. However, section 906 suggests that certification would be required upon enactment, thus the penalties would go into effect before the certification requirement is completed through the rulemaking process. I believe it was the intent of the Conferees that the penalties under section 906 should not become effective until the rulemaking process is finalized. Under the conference report, section 3(a) gives the SEC wide authority to enact implementing regulations that are ``necessary or appropriate in the public interest.'' I believe it is the intent of the conferees to permit the Commission wide latitude in using their rulemaking authority to deal with technical matters such as the scope of the definitions and their applicability to foreign issuers. I would encourage the SEC to use its authority to make the act as workable as possible consistent with longstanding SEC interpretations. Finally, I not only thank the Senators I have been able to work with on this, but I also thank the staffs. I thank particularly Katherine McGuire, my legislative director, and Mike Thompson, who handles my banking issues. I also thank Kristi Sansonetti, who works on all of my legal issues, and Ilyse Schuman, who played a very important role in the blackout pension period. I thank, on Senator Sarbanes's staff, Steve Harris, Marty Gruenberg, Steve Kroll, Dean Shahinian, Lynsey Graham, and Vince Meehan. I thank, on Senator Gramm's staff, Wayne Abernathy, Linda Lord, who is probably one of the most knowledgeable lawyers in this area I have ever encountered, Michelle Jackson and Stacie Thomas. And, on Senator Dodd's staff, I thank Alex Sternhell. America will never know all the work these people have done on this bill, the hours they have spent on it, daytime and nighttime. I have seen them working in the early morning hours on this, and that is after spending the previous night working on it. They have just spent incredible time on this. There is some incredible expertise among these people. Without their help, we would have never gotten to this point. So I thank all of them. I thank the chairman and Senator Gramm and all the others who have had a part in this. It is time we adopt this bill. I yield the floor.

Mr. ENZI. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. ENZI. Thank you, Mr. President. I am here today to speak in support of the conference report to the accounting reform bill. I will be encouraging all Senators to vote for the conference report. This is earthshaking legislation that has been done with tremendous speed. It had to be earthshaking because we are trying to counteract the tremors from the volcanic action of the mountaintop being blown off such companies as Enron, WorldCom, Global Crossing, and others. Those collapses have set up a series of tremors across this country. Congress is not the one to solve all the problems. But as Senator Gramm just mentioned, we are expected to work at solving all of the problems. We have put in a huge effort on this bill, and it will make a difference. While we have been working, the stock market has been going through some tremendous gyrations. I think some of those reactions in the stock market were to see how carefully we would consider and resolve this issue. I believe, the stock market was worried that we would overreact. The market watched to see if Congress would keep adding and adding things, until we destroyed the whole system. They can now see that did not happen--Congress acted responsibly. We took a long and tough look at the problem and reacted, but we did not overreact. At the same time corporations across the country have been making sure they did not have the kinds of problems brought to light in a few of these companies. ``Corporations'' should not be a bad word in this country. This country was built on business. I always like to mention that it was primarily built on small business--small businesses that grew up, in many cases, but nevertheless ideas that started out as a small business. We have to keep our focus on those small businesses, and make sure they are able to continue to operate in the climate that we have in the United States and under the laws that we pass. I am pleased to say that the actions we took in this bill provide some assurance to small businesses and small accounting firms that they can continue to operate the way they have in the past. We have given encouragement to the States not to run out and apply the same types of laws. I hope the States are paying attention because they will ruin a very good thing if they destroy small business. Keep the eye on small business, and we will continue to have big business. Corporations have been checking what has been going on in their firms to a greater extent than they have ever before. Boards, CEOs, CFOs, and audit committees have been checking to see if they have the kinds of problems that brought down these other companies. It is much like when there is a plane crash. Right after a plane crash is probably the safest time in the world to fly because everybody checks their equipment ever so much more carefully to make sure that the kind of defects that may have caused other problems will not happen to them. And the effect lasts for a long time afterwards. Corporations have been checking their books. They have begun changing procedures. Some of the changes they have made have resulted in restatements. They have paid a price for doing restatements. But they have done the right thing by doing a restatement, and they should be recognized for that. I mentioned speed before. The Senate is not designed for speed. We started out slow. We held 10 hearings. We looked at the issues very carefully, everybody resolved in writing their own ideas. One of the tough things about legislating is putting it down in writing. The concepts are so easy, but the details are so tough. There are a number of people who drafted bills on this--both in the House and in the Senate. On this side, Senator Gramm and I drafted a bill. Senator Corzine and Senator Dodd introduced a bill. Of course, Senator Sarbanes had the overreaching bill, and I believe his benefited a little bit from having copies of both the House and Senate bills on which to build his bill. I compliment him for the way he took ideas from all of these different approaches. Again, it shows the value of legislating by a wide variety of people. You get a wide variety of viewpoints, which actually provides some insights into areas that a person might not have thought about. But, at any rate, we concluded the hearings, and we merged the bill. This came to committee the week before the Fourth of July. It passed out of committee in one day. It came to the floor of this body just 2 weeks ago. And now, it has already been conferenced, and come back to us for final passage. Part of that is a result of the atmosphere we are in, and the need for action. Timing can be everything on a bill. But part of it is because of the concentration of people who worked on this. This legislation is a response to problems highlighted by the recent corporation failures of Enron, WorldCom, and others. It does send a clear signal to corporate America that executives can no longer abuse the trust their shareholders place in them without severe consequences. This legislation builds a strong and independent board to oversee the accounting industry. It will eliminate the climate of self-regulation that has historically guided accounting. However, I would like to make one point clear. I believe that, overall, accountants take their responsibilities very seriously. They did before, and they do now. We have the best system in the world. What we are doing with this is to maintain that we have the best system in the world. Most accountants are honest and hard working. They work for the benefit of the investors with probably the same percentage of exceptions as other professions. This legislation will also provide for strong disciplinary action against executives who break the law. No longer will they be disciplined with a slap on the wrist. The bill recognizes that executives who destroy the dreams of investors by irresponsible and unethical behavior will be given the severe punishment they deserve. I also want to again thank Senator Sarbanes and Senator Gramm for their leadership on this issue. They both have worked tirelessly the past few months to get this bill finished in a timely manner. I particularly appreciate some of the insights Senator Gramm gave me as he worked on this bill in more detail than most people ever achieve. It is his standard, and he carried that out again this time, which did resolve a number of the problems. I want to congratulate Senator Sarbanes, and thank him for the way he conducted the hearings. A lot of people do not realize that the Chairman of a committee usually gets to pick most of the witnesses, and the ranking member gets to pick a few of the witnesses. As we went through these 10 hearings, I couldn't find any witnesses that I wouldn't have picked were I given the selection. There were some very qualified people who testified. Some of them were even accountants. I did appreciate that. I apologize for asking some questions of them but it was such a great opportunity for me. My staff noticed that when the camera focused in on the person giving the answer, the wedge of people behind them were all asleep. So what we dealt with is not the kind of thing that Americans get really excited about. It is far too detailed for us to get too excited about it. For accountants, these kinds of discussions are almost like watching ESPN. Senator Sarbanes did continue to meet with me and other Members and continued to make changes that improved the bill. There was a wide variety of Senators who worked on this bill. I have mentioned Senators Dodd and Corzine and Gramm. Senator Edwards worked with me on one provision that is in this bill to make sure that not only accountants, analysts, CEOs, CFOs, Boards and audit committees were addressed under this bill, but lawyers have some responsibility, too. I find it very exciting we are going to make lawyers have a code of ethics when they are dealing with the Securities and Exchange Commission, and that they are going to have an obligation to report things when they find them. I know that causes some consternation among some attorneys, but I think it will make, overall, the same kind of improvements we are expecting from everybody else. Senators Allen, Gregg, Baucus, Grassley, and Kennedy all worked on some provisions that we don't talk about too much; again, it is in the detail area, but it has to do with the blackout period when you are dealing with pension and other stock sales by executives. I know the intense hours it took to come up with a solution that would work. And if you have that many people agreeing on it, there is probably a good chance it will work. Again, I congratulate all those people for their constraint in limiting their ideas to what needed to be done for this bill. A lot of ideas were floating around here on lots of things we can with corporations and executives that people want to have fixed, but this bill did maintain some real constraint to stay on topic. I do believe the conference report is an improved bill from the one that passed the Senate. Again, I appreciate Senator Sarbanes working with me to make some of the changes about which I spoke. One change we made changes the implication that not all nonaudited services should be presumed illegal. The bill has been changed to clearly allow the audit committee to make that determination without the law implying that it is illegal. In addition, he made some changes dealing with the testing of internal compliance. I believe the new language more clearly represents the true role of auditors. One of the problems we dealt with throughout this process is educating Members on exactly what the role of an auditor is. I believe the new language represents that realization, and I thank the chairman for making the change. There is another important change in the provision dealing with corporate loans. The provision would still prohibit corporate executives from reaping millions of dollars in loans from their companies, but the new language also realizes that executives need to use things such as credit cards to conduct their business. So this section is a vast improvement. Another item I would like to comment on is the understanding that insurance companies, many times, have audits they must file with their State regulators. It would be burdensome and expensive to require these companies to hire a separate auditing firm to perform this responsibility. That problem was also recognized, and the needed changes were made. However, I also understand that due to the time constraints, a report will not be filed with the bill. I think this will pose a series of problems because we will not be defining what the authors actually intended with certain sections of the bill and allowing the same written discourse that there would be on the bill. I think this may especially cause problems with the extraordinary number of regulations that are going to have to be written to implement the bill. As the ranking member of the subcommittee with jurisdiction over the Securities and Exchange Commission, I do intend to work closely with the Commission to ensure that the new regulations are consistent with what I see as congressional intent. I will work with others to make sure these regulations conform. I ask the ranking member, could I have an additional 3 minutes?

Mr. ENZI. I suggest the absence of a quorum.

Mr. ENZI

Mr. ENZI. Mr. President, since I still have time remaining under morning business, I will comment on another issue that I am sure will be commented on throughout the day and later next week. Later this morning I will be at a conference meeting on the accounting reform bill. I have had a considerable role in that process and will be doing that when we get to the actual debate on this bill. I see that as a top priority as well. Today I rise in support of the tripartisan 21st Century Medicare Act, which was introduced on July 15 by Senators Grassley, Snowe, Jeffords, Breaux, and Hatch. This bill is a giant step forward for seniors in this country and it demonstrates a sincere commitment to future beneficiaries, by taking steps to preserve, improve, and modernize the Medicare Program. No other proposal before the Senate can deliver on such a promise. Some of them have not been introduced yet. In fact, we have been a little disappointed that bills have not been introduced so that a more direct discussion can be done on that. I should say, not only no other proposal is before the Senate, no other proposal that is being talked about out there can deliver on the promise that this bill does. This bill very likely has the support of the majority of the Senate. Of course, we would need a supermajority, or support of 60 Members, to adopt the bill. It raises a very important and interesting question. It is a budget question, because the score of the tripartisan bill exceeds by $70 billion the $300 billion Congress reserved last year for Medicare; there is a budget point of order that can be raised against the bill. Essentially, if a Senator votes against removing or bypassing the budget point of order, they will be saying this bill costs taxpayers too much, so I will not support it. But what is really interesting is that many of those who oppose this bill are actually supporting a proposal that is significantly more costly to the taxpayers. So I suggest people take a look to see who votes against this bill on the basis it exceeds the amount of money we have set aside by $70 billion and then perhaps votes for a bill that is $700 billion, $800 billion, $900 billion--or a trillion dollars--perhaps twice or three times the cost of this bill. My point is a number of my colleagues could find themselves in the position of voting against one bill because it costs too much only to turn around and support a competing bill that is two or three times more costly. Beyond cost to taxpayers, there are other important policy differences between the two Medicare drug benefit proposals. I believe the most important is that the tripartisan bill stretches Federal dollars further than any other proposal and provides a permanent, comprehensive drug benefit that's affordable for seniors and taxpayers. This is a critical achievement. And, the bill does even more. It provides seniors with the option of an expanded fee-for-service plan, including drug coverage, that will serve as the first modernization of the scope of benefits under Medicare since the program was created almost 40 years ago. Lastly, while Medicare managed care plans--known as Medicare Plus Choice plans--are not serving Wyoming, millions of seniors across the country made the ``choice'' to enroll in those plans, and this bill makes long overdue improvements to how those plans compete for seniors' business. My colleagues from more populous and urban states undoubtedly know that seniors who have Medicare Plus Choice plans as an option now want to keep that option and want to see it expanded and improved. All of this sounds like a lot. And it is. But I won't stand here and tell my constituents in Wyoming that this is everything they might dream of in a prescription drug benefit. It is a giant step forward and it will absolutely reduce the drug costs seniors bear today. It won't make those costs disappear, but it will dramatically reduce them. And, it's a benefit we can afford to enact for seniors today and keep our promise to implement it in 2005. The proponents of the Daschle bill are also making seniors promises about a great new drug benefit. Except we can't afford it, so it's a hollow promise. The opponents of the tripartisan bill will say that our bill doesn't provide a real benefit to seniors. Well, here's the skinny on our bill and what it will save seniors in out-of-pocket costs. The Congressional Budget Office (CBO) determined that Medicare beneficiaries will spend an average of $3,059 per year on drugs in 2005. If enacted, this bill would cut those costs by 53%--a savings of over $1600. That is real money. CBO also determined that the bill would cut costs for lower- income beneficiaries at or below 135% of poverty by 98%, a savings of $2,988! The estimated out-of-pocket cost per prescription among the 50 most-prescribed medications would be $21. And, every beneficiary would have at least 2 drug plans to choose from when selecting the plan that best fits their health care needs. The Democrat bill, on the other hand, has a statutorily prescribed cost sharing for all drugs that the government decides to include in the plan, and every senior must participate in that one-size-fits-all plan. That's a concerning and very significant difference from the tripartisan bill. All of us in this body have numerous choices of health plans both at and above the standard benefit package under the Federal Employees Health Benefit Program. I do not believe seniors should be--by law--without a choice in their own health coverage. Unlike the tripartisan bill, the Daschle bill completely misses the opportunity to improve Medicare through expanded choices for seniors when selecting the right drug coverage. To restate another distinction I raised earlier, the tripartisan bill has been officially scored by the CBO to cost $370 billion over 10 years. The sponsors of the Daschle bill have not provided us with an official score, but the unofficial scores are as high as $1 trillion over 10 years. More importantly, the drug benefit is not permanent under the Daschle bill. It would sunset in the year 2010. That is to hold costs down as much as possible. There are rumors of a 4th iteration of the bill that would not sunset the benefit, but that bill has not been introduced and will be much more costly. Since I'm talking about the cost of the Daschle bill to taxpayers, I would be remiss if I did not talk about the cost of the bill to seniors themselves. Because the bill would cement in Federal law fixed co- payment amounts for all drugs, seniors will actually pay more for certain drugs than they would if the bill allowed drug plans to offer lower co-payments. The CBO analysis and score of the tripartisan bill proves that it employs this logic and essentially proved that drugs will be provided in a more cost-effective way under the tripartisan model. I have mentioned it before, but I just want to say again that, in addition to the very high profile issue of needing to provide a drug benefit, Medicare has many other shortcomings. It is crying out for updating and improvements. No one in this chamber can possibly be satisfied with the program's status quo. Every day--literally--I either meet with or hear from my constituents who interact with the Medicare program or beneficiaries. They are all complaining, and rightly so. The program was created with the best of intentions. But since that day some 40 years ago, the rest of the health care world has evolved and improved, from standards of care to technology to disease management. Not to mention how providers are reimbursed and empowered in the delivery of health care services. I question whether any of this progress has penetrated the morass of the Medicare program. In fact, all I seem to hear from my constituents is that things are pretty bad with Medicare right now. That is before the new program is started. I am astonished that only one of the two major bills--the tripartisan bill--tries to address the other problems with Medicare. The foundation of the program desperately needs reinforcement; simply building on its weak foundation the way the Daschle bill does is dangerous and falls short of our obligation to do our best for seniors where all of their health care is concerned. Where the tripartisan bill has an enhanced fee-for-service option and improvements to the existing Medicare Plus Choice option, the Daschle bill is eerily silent. Such an absence of reform will only cost seniors more money in patch jobs down the road. I guess I have come full circle. This debate is all about giving seniors additional coverage options and saving them money. Many seniors currently lack drug coverage. All of the bills will give them coverage and cost them less out-of-pocket than what they pay right now. But only the tripartisan bill will give them flexibility in their coverage choices and buy them and taxpayers the most that a dollar will buy. That takes competition and modernization. The tripartisan bill has both. The Daschle bill prohibits competition in its statutory language and does not entertain even modest improvements to the rest of the Medicare program. The choice is clear to me and, I imagine, will be crystal clear to the American people. For that reason, Mr. President, I would ask unanimous consent that I be added as a cosponsor of the 21st Century Medicare Act.

Mr. ENZI. Mr. President, I yield the floor. I suggest the absence of a quorum.

Mr. ENZI

Mr. ENZI. How did we get here, to this point of perhaps possibly legislating on stock options? The debate on stock options became heated over the last few months, following the accounting debacles of Enron, WorldCom, and Global Crossing. I think we can all agree that the use of stock options did not cause the demise of these companies, but nevertheless their use by these and other companies has become increasingly scrutinized during the current accounting debate and evidence of top exeuctive abuse. What initially raised everyone's attention to stock options was Enron. As we all know, Enron's executives and employees were issued numerous stock options. It is now clear that months before Enron filed for bankruptcy, executives who were aware of the true condition of the company, exercised millions of dollars of their options. Now, Enron employees--kept in the dark on company finances--are left with worthless Enron stock and retirement savings. While these Enron executives absconded with money from the sell of stock options, we all know the financial collapse of Enron had little to do with its accounting procedures on stock options. Enron went bankrupt. Nevertheless, concerns about stock option use by corporations have become magnified. We all know that when properly used, stock options can be a marvelous opportunity for all employees. In addition, small businesses and startup companies use stock options as an incentive and sometimes the only means to attract qualified employees. There have been many suggestions on what will stop future Enrons, and included in that debate has been a discussion on improving the accounting practices and other issues concerning stock options. Some members have come up with some creative and not so creative ideas on how to improve their use. Some have not considered how their ideas will affect rank-and-file employees, while others have kept that as their primary consideration. Some members have proposed setting a new expensing standard or directing the Federal Accounting Standards Board to take some specific action in setting new expensing rules. But, these amendments have pre- ordained what the solution to stock options will be. Members promoting these amendments are furnishing their own conclusions. They mandate either codification of new expensing rules, or direct the Federal Accounting Standards Board, known as FASB, to require stock option expensing at the time of grant or exercise. This is a conclusion some of us do not believe should be made by non-experts in Congress, without careful analysis. Our bipartisan amendment is different. It doesn't preordain what the solution to stock options will be. Instead, it directs the SEC to analyze the treatment of stock options in several categories, not just stock option expensing, and lend its superior expertise in furnishing a report and making useful recommendations. This is a smart amendment because 99 non-accountant Senators, and one accountant Senator, all without expertise in securities accounting and law, have no business making a definitive decision on what the answer to stock option problems should be. Instead, the SEC should analyze the problem and make recommendations on what is needed. Let me get to the specifics of our amendment. First, it requires an analysis of the accounting treatment of employee stock options, including the accuracy of available stock option pricing models. What are these models? Currently, companies estimate the value of granted stock options using something called the Black-Scholes model. This is because they do not know what the future value of their stock will be when the options are actually exercised and sold. So they make an educated guess with the Black-Scholes model. However, many believe the current practice of using the Black-Scholes method to value stock options, as currently used on footnotes, is fatally flawed. This method will be just as flawed if it must be used for expensing stock options at the time of grant. This amendment directs the SEC to look at the accuracy of this and other pricing models. Second, our amendment directs the SEC to analyze the adequacy of current disclosure requirements to investors and shareholders on stock options. The SEC needs to determine whether better disclosure provisions would solve the current, perceived problem with stock option reporting. The SEC can study what further disclosure and transparency provisions, if any, would be useful. We do not know what the SEC's recommendations might be. They might include a recommendation for user-friendly disclosure in clear, plain English with graphs and charts, which are comparable with other company disclosures. They might recommend increased quarterly reporting on certain information. Even high profile financial celebrities have differing view on expensing and disclosure. Like me, Secretary O'Neill has advocated fuller disclosure as a means to cure the present perceived problems with the information provided to investors and shareholders in footnotes on company financial statements, rather than expensing. Others, like Warren Buffet, have said fuller disclosure and transparency will not cure these problems, and Congress should do something about expensing. Alan Greenspan believes expensing of stock options at the time of grant is needed, but that Congress should not be the one deciding this or setting accounting standards. Given these differing views by financial heavy weights like Secretary O'Neill, Greenspan and Buffett, it makes sense to let the SEC analyze this issue and make the determination of what, if any, disclosure improvements are necessary, taking into account the effect on all affected parties--companies, shareholders, investors, and rank-and-file employees. Next, our amendment would direct the SEC to analyze the adequacy of corporate governance requirements on stock options, including the usefulness of having shareholders approve stock option plans. Previously, I advocated shareholder approval of stock option issuance to top corporate executives to prevent them from abusing stock options. Now, I and others of us are leaving it to the SEC to determine whether this will prevent stock option abuse. Our bipartisan amendment also requires an analysis of the need, if any, for stock holding period requirements for senior executives. Some Senators have advocated a holding period during which top executives cannot sell their stock options. One suggestion was that a 90-day cooling off period occur before a top executive can sell his stock. Another suggestion was that these executives could not sell their stock until they left the company and a two-year period expired. These suggestions pose a dramatic solution which needs more study by the SEC. These are not provisions to be taken lightly, nor drafted hurriedly by Senators. This type of amendment could possibly help prevent abuses, or have the opposite effect of chilling the future use of stock options entirely. Because I do not know what the effect of this will be and whether it will prevent executive fraud and abuse, I am at least willing to let the SEC study it to see if there is any merit to it. And finally, our amendment directs the SEC to look at the benefit and detriment of any new options expensing rules. So, instead of Senators, who have little knowledge of securities accounting, making an accounting decision on stock option expensing, we are leaving it in the hands of the SEC to see how expensing will affect all segments related to stock options. Our bipartisan amendment directs the SEC to look at the benefit and detriment of stock option expensing on companies and start-up enterprises. Specifically, it requires the SEC to look at what stock options expensing would do to the productivity and performance of all sizes of companies, and start-up enterprises. I am particularly concerned about the effect of expensing stock options on small companies and start-up enterprises. Many small businesses and start-up companies cannot afford to offer the salaries larger companies give, so they offer stock options as an incentive to attract highly-skilled employees. In addition, our amendment would require the SEC to look at the benefits and detriments of stock option expensing on the recruitment and retention of skilled workers. Currently, employees who risk working for start-up companies have the ability to make much more money than through traditional methods of payment by salaries or wages. Those who stay with the company tend to have a vested interest in the company through the issuance of stock options. Stock options may be the very reason that some employees start with a company and stay with it. We are asking the SEC to look at the issue of what effect stock option expensing will have on future recruitment and retention of employees. Finally, and most importantly, our amendment asks the SEC to look at the benefits and detriments of stock options on employees at all income levels, with particular emphasis on rank-and-file employees. These are some of the questions the SEC needs to look at and make a recommendation on. Whatever we do, we need to make sure the cure is not worse than the disease. We should not rush to pass something just for the sake of legislating on stock options. Let us step back and see what recommendations the SEC makes. Then, with cooler heads, perhaps we can prevail in getting rules and regulations on stock options which are truly needed, and not merely an overreaction to the current atmosphere of Enron. I would hate to see any hastly decision chill the ability of companies to issue stock options to millions of rank-and-file employees. Or chill new start-up companies' use of stock options to attract employees. At the same time, we have to stop future abuses by corporate executives who thumb their noses while plundering companies resources. For these reasons, I ask you to vote in favor of the Enzi-Lieberman- Allen-Boxer Amendment.

Mr. ENZI. Mr. President, I rise today to introduce the Enzi- Lieberman-Allen-Boxer amendment on stock options. Our bipartisan amendment helps solve many of the perceived problems with the issuance of stock options by giving the SEC a broad mandate to look into and analyze numerous issues concerning stock options, including disclosure, corporate governance, and the benefits and detriments of expensing stock options. After its analysis, the SEC will be required to furnish recommendations, if any, for changes in corporate America's uses of stock options, and we envision that being done through FASB. We are not trying to tell FASB, the Federal Accounting Standards Board, how to do their work; we are trying to provide them with more information so they can make a consideration of that issue again. I and the other original cosponsors of this bill have sent a letter to Chairman Harvey Pitt and the other Commissioners on the SEC asking them to initiate on their own the action items outlined in our bill and to make recommendations on these issues in the next 60 days. I hope they take such initiative. Mr. President, I ask unaimous consent the letter be printed in the Record.

Mr. ENZI

Mr. ENZI. How did we get here, to this point of perhaps possibly legislating on stock options? The debate on stock options became heated over the last few months, following the accounting debacles of Enron, WorldCom, and Global Crossing. I think we can all agree that the use of stock options did not cause the demise of these companies, but nevertheless their use by these and other companies has become increasingly scrutinized during the current accounting debate and evidence of top exeuctive abuse. What initially raised everyone's attention to stock options was Enron. As we all know, Enron's executives and employees were issued numerous stock options. It is now clear that months before Enron filed for bankruptcy, executives who were aware of the true condition of the company, exercised millions of dollars of their options. Now, Enron employees--kept in the dark on company finances--are left with worthless Enron stock and retirement savings. While these Enron executives absconded with money from the sell of stock options, we all know the financial collapse of Enron had little to do with its accounting procedures on stock options. Enron went bankrupt. Nevertheless, concerns about stock option use by corporations have become magnified. We all know that when properly used, stock options can be a marvelous opportunity for all employees. In addition, small businesses and startup companies use stock options as an incentive and sometimes the only means to attract qualified employees. There have been many suggestions on what will stop future Enrons, and included in that debate has been a discussion on improving the accounting practices and other issues concerning stock options. Some members have come up with some creative and not so creative ideas on how to improve their use. Some have not considered how their ideas will affect rank-and-file employees, while others have kept that as their primary consideration. Some members have proposed setting a new expensing standard or directing the Federal Accounting Standards Board to take some specific action in setting new expensing rules. But, these amendments have pre- ordained what the solution to stock options will be. Members promoting these amendments are furnishing their own conclusions. They mandate either codification of new expensing rules, or direct the Federal Accounting Standards Board, known as FASB, to require stock option expensing at the time of grant or exercise. This is a conclusion some of us do not believe should be made by non-experts in Congress, without careful analysis. Our bipartisan amendment is different. It doesn't preordain what the solution to stock options will be. Instead, it directs the SEC to analyze the treatment of stock options in several categories, not just stock option expensing, and lend its superior expertise in furnishing a report and making useful recommendations. This is a smart amendment because 99 non-accountant Senators, and one accountant Senator, all without expertise in securities accounting and law, have no business making a definitive decision on what the answer to stock option problems should be. Instead, the SEC should analyze the problem and make recommendations on what is needed. Let me get to the specifics of our amendment. First, it requires an analysis of the accounting treatment of employee stock options, including the accuracy of available stock option pricing models. What are these models? Currently, companies estimate the value of granted stock options using something called the Black-Scholes model. This is because they do not know what the future value of their stock will be when the options are actually exercised and sold. So they make an educated guess with the Black-Scholes model. However, many believe the current practice of using the Black-Scholes method to value stock options, as currently used on footnotes, is fatally flawed. This method will be just as flawed if it must be used for expensing stock options at the time of grant. This amendment directs the SEC to look at the accuracy of this and other pricing models. Second, our amendment directs the SEC to analyze the adequacy of current disclosure requirements to investors and shareholders on stock options. The SEC needs to determine whether better disclosure provisions would solve the current, perceived problem with stock option reporting. The SEC can study what further disclosure and transparency provisions, if any, would be useful. We do not know what the SEC's recommendations might be. They might include a recommendation for user-friendly disclosure in clear, plain English with graphs and charts, which are comparable with other company disclosures. They might recommend increased quarterly reporting on certain information. Even high profile financial celebrities have differing view on expensing and disclosure. Like me, Secretary O'Neill has advocated fuller disclosure as a means to cure the present perceived problems with the information provided to investors and shareholders in footnotes on company financial statements, rather than expensing. Others, like Warren Buffet, have said fuller disclosure and transparency will not cure these problems, and Congress should do something about expensing. Alan Greenspan believes expensing of stock options at the time of grant is needed, but that Congress should not be the one deciding this or setting accounting standards. Given these differing views by financial heavy weights like Secretary O'Neill, Greenspan and Buffett, it makes sense to let the SEC analyze this issue and make the determination of what, if any, disclosure improvements are necessary, taking into account the effect on all affected parties--companies, shareholders, investors, and rank-and-file employees. Next, our amendment would direct the SEC to analyze the adequacy of corporate governance requirements on stock options, including the usefulness of having shareholders approve stock option plans. Previously, I advocated shareholder approval of stock option issuance to top corporate executives to prevent them from abusing stock options. Now, I and others of us are leaving it to the SEC to determine whether this will prevent stock option abuse. Our bipartisan amendment also requires an analysis of the need, if any, for stock holding period requirements for senior executives. Some Senators have advocated a holding period during which top executives cannot sell their stock options. One suggestion was that a 90-day cooling off period occur before a top executive can sell his stock. Another suggestion was that these executives could not sell their stock until they left the company and a two-year period expired. These suggestions pose a dramatic solution which needs more study by the SEC. These are not provisions to be taken lightly, nor drafted hurriedly by Senators. This type of amendment could possibly help prevent abuses, or have the opposite effect of chilling the future use of stock options entirely. Because I do not know what the effect of this will be and whether it will prevent executive fraud and abuse, I am at least willing to let the SEC study it to see if there is any merit to it. And finally, our amendment directs the SEC to look at the benefit and detriment of any new options expensing rules. So, instead of Senators, who have little knowledge of securities accounting, making an accounting decision on stock option expensing, we are leaving it in the hands of the SEC to see how expensing will affect all segments related to stock options. Our bipartisan amendment directs the SEC to look at the benefit and detriment of stock option expensing on companies and start-up enterprises. Specifically, it requires the SEC to look at what stock options expensing would do to the productivity and performance of all sizes of companies, and start-up enterprises. I am particularly concerned about the effect of expensing stock options on small companies and start-up enterprises. Many small businesses and start-up companies cannot afford to offer the salaries larger companies give, so they offer stock options as an incentive to attract highly-skilled employees. In addition, our amendment would require the SEC to look at the benefits and detriments of stock option expensing on the recruitment and retention of skilled workers. Currently, employees who risk working for start-up companies have the ability to make much more money than through traditional methods of payment by salaries or wages. Those who stay with the company tend to have a vested interest in the company through the issuance of stock options. Stock options may be the very reason that some employees start with a company and stay with it. We are asking the SEC to look at the issue of what effect stock option expensing will have on future recruitment and retention of employees. Finally, and most importantly, our amendment asks the SEC to look at the benefits and detriments of stock options on employees at all income levels, with particular emphasis on rank-and-file employees. These are some of the questions the SEC needs to look at and make a recommendation on. Whatever we do, we need to make sure the cure is not worse than the disease. We should not rush to pass something just for the sake of legislating on stock options. Let us step back and see what recommendations the SEC makes. Then, with cooler heads, perhaps we can prevail in getting rules and regulations on stock options which are truly needed, and not merely an overreaction to the current atmosphere of Enron. I would hate to see any hastly decision chill the ability of companies to issue stock options to millions of rank-and-file employees. Or chill new start-up companies' use of stock options to attract employees. At the same time, we have to stop future abuses by corporate executives who thumb their noses while plundering companies resources. For these reasons, I ask you to vote in favor of the Enzi-Lieberman- Allen-Boxer Amendment.

Mr. ENZI. Mr. President, I rise today to introduce the Enzi- Lieberman-Allen-Boxer amendment on stock options. Our bipartisan amendment helps solve many of the perceived problems with the issuance of stock options by giving the SEC a broad mandate to look into and analyze numerous issues concerning stock options, including disclosure, corporate governance, and the benefits and detriments of expensing stock options. After its analysis, the SEC will be required to furnish recommendations, if any, for changes in corporate America's uses of stock options, and we envision that being done through FASB. We are not trying to tell FASB, the Federal Accounting Standards Board, how to do their work; we are trying to provide them with more information so they can make a consideration of that issue again. I and the other original cosponsors of this bill have sent a letter to Chairman Harvey Pitt and the other Commissioners on the SEC asking them to initiate on their own the action items outlined in our bill and to make recommendations on these issues in the next 60 days. I hope they take such initiative. Mr. President, I ask unaimous consent the letter be printed in the Record.

Mr. ENZI

Mr. ENZI. I thank the Chair. (The remarks of Mr. Enzi pertaining to the introduction of S. 2760 are located in today's Record under ``Statements on Introduced Bills and Joint Resolutions.'')

Mr. ENZI. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. ENZI

Mr. ENZI. Madam President, all here today have the same goal in mind, and that same goal is to be sure we have the lowest priced, best, and most available prescription drugs in the world. We do want to make sure the cost is as low as possible. How we get there we have some disagreement over, and I would like to take a moment to address the first-degree amendment that is before us right now, which I hope will be corrected with the second-degree amendment. The first-degree amendment would allow for pharmacies and pharmaceutical distributors to reimport drugs from Canada. I continue to have two major concerns about the amendment. First, as my colleague from Mississippi has articulated, there is no way to assure the safety of drugs reimported from Canada. Experts, including two Secretaries of Health and Human Services, said it cannot be safely implemented for consumers. That is probably even more true since September 11 and the anthrax attack. Safety is the reason we do not have it right now. I believe we are presently operating under the Prescription Drug Marketing Act of 1987, which expressly bans the reimportation of drugs to protect the public health and the integrity of the distribution market in the United States. It passed the Senate unanimously. That means everybody who was here on March 31, 1988, agreed for it to go through. Former Senator Al Gore was a cosponsor, and on the House side it was implemented and backed by such outstanding conservatives as Representative John Dingell and Representative Henry Waxman. They were the key House sponsors of the legislation. The finding in the bill as passed did focus on the risk of reimportation to consumers. I ask unanimous consent that the findings from that bill be printed in the Record.

Mr. ENZI. Madam President, I will read a couple: (1) American consumers cannot purchase prescription drugs with the certainty that the products are safe and effective. (2) The integrity of the distribution system for prescription drugs is insufficient to prevent the introduction and eventual retail sale of substandard, ineffective, or even counterfeit drugs. (5) The ready market for prescription drug reimports has been the catalyst for a continuing series of frauds against American manufacturers and has provided the cover for importation of foreign counterfeit drugs. It is interesting; some of the people who debated in favor of doing that--and, as I mentioned, it passed unanimously--we are having that same debate right now, and the same arguments are valid for why that would not provide a good solution for consumers. I also mention S. 2244 would create a second route for transporting drugs into the United States outside the existing regulatory system. The bill would allow pharmacists and wholesalers to purchase drugs from Canadian sellers over which the United States authority, the FDA, and others have no jurisdiction or control. It provides the threat of counterfeits and does not depend on the integrity of the product itself but on the integrity of those handling the product. Even worse, the bill would require drug manufacturers to disseminate their drug formulations and chemical fingerprints to potentially thousands of pharmacies and wholesalers. This information, currently protected as a trade secret, could be worth millions of dollars per drug on the black market. Counterfeiters could obtain drug formulations and learn how to make their fake drugs look real and survive chemical analysis. Notwithstanding these very real safety concerns, it is unlikely the bill would achieve the goal of bringing cheaper drug products to U.S. consumers. The cost savings we talk about might be obtained but more likely would be absorbed by the fees that would be charged by the exporters, the wholesalers, the pharmacists, and the testing labs. The bill also requires Canadian sellers to register with the FDA. However, because the FDA has no authority to inspect foreign facilities, the agency will have no way of knowing whether these registered firms are legitimate, whether they handle and store drugs properly, or whether the drugs were manufactured under current good manufacturing practices. That is the first reason. I hope our colleagues who support the amendment and have been on the floor today urging us to support the amendment so seniors can have access to the drug pricing structure that Canada has imposed on drug companies will look a little bit at Canada. Canada, which operates a socialized national medical system, has imposed price controls on prescription drugs. Canada has also imposed rationing in other health care services, such as dialysis for elderly patients suffering from kidney failure. But we probably do not want to import that policy. I know a lot of people from Canada who come down to the United States to get their health care because they cannot get all of the choices the United States has, and even when they can get the choices, have to wait in line for it. I think it has already been covered a little bit by my colleague from Pennsylvania that in Canada they bid for the drugs. You do not get all of the drugs. You get the one drug that will handle that general practice, and the country gets competition by bidding among the several people who try to handle that particular ailment. By bidding on it, they are able to drive some of the prices down. They also eliminate choices for doctors and for consumers, ultimately the consumers. If what we are trying to do is price controls, we can do price controls, too. We probably ought to be debating them as price controls, legislate them, affirmative approval, and setting U.S. price controls. I hope we do not do that. I am not serious at all in suggesting that because when my wife and I first went into the shoe business, it was at the time that Nixon was in office and they talked about price controls. As soon as they talked about price controls, the companies that were supplying us with shoes did a 30-percent increase in the price of the shoes. Then, as soon as price controls went into effect, they did the 20-percent increase that they were allowed to do. People were paying 50 percent more for shoes than they should have been just because the companies were worried about how they were going to be able to continue their profits. I can say that each and every year on the date they were allowed to raise their prices, they raised their prices. It had nothing to do with what the cost of the shoes were, but it affected the consumer dramatically. Passing the Dorgan amendment is not only having Canada legislate for America, it is denying Congress and the American people the opportunity to fairly debate the matter. I do not think we are ready to do that yet. We all want to have the lowest priced pharmaceuticals we possibly can, but we do want to have the safety factor, and I do not think we want to have price controls or the Canada method of doing health care. I yield the floor and reserve the remainder of my time.

Mr. ENZI

Mr. ENZI. Mr. President, on May 4-6, 2002, more than 1,200 students from across the United States visited Washington, DC, to compete in the national finals of the We the People . . . The Citizen and the Constitution program, the most extensive educational program in the country developed specifically to educate young people about the Constitution and the Bill of Rights. I am proud to report that the class from Green River High School from Green River represented the State of Wyoming in this national event. These young scholars worked diligently to reach the national finals and through their experience have gained a deep knowledge and understanding of the fundamental principles and values of our constitutional democracy. The fine students from Wyoming who were chosen to participate include: Jamie Adams, Ashley Andersen, Melissa Bassett, Kimberly Bucheit, Michelle Edwards, Christina Gipson, Aaron Hayes, Daniel Johnson, Christopher Legerski, Michael Merkley, Nathaniel Steinhoff, Eric Stewart, Julia Stuble, and Katherine Tolliver. I would also like to recognize their teacher, Dennis Johnson, who deserves much of the credit for their success. The 3-day national competition is modeled after hearings in the Congress. The hearings consist of oral presentations by high school students before a panel of adult judges on constitutional topics. The students' testimony is followed by a period of questioning by the judges who probe their depth of understanding and ability to apply their constitutional knowledge. Administered by the Center for Civic Education, the We the People . . . program has provided curricular materials at upper elementary, middle, and high school levels for more than 26.5 million students nationwide. The program provides students with a working knowledge of our Constitution, Bill of Rights, and the principles of democratic government. Members of Congress and their staff enhance the program by discussing current constitutional issues with students and teachers and by participating in other educational activities. It is inspiring to see these young people advocate the fundamental ideals of principles of our Government in the aftermath of the tragedy on September 11. These are ideas that identify us as a people and bind us together as a nation. It is important for our next generation to understand these values and principles which we hold as standards in our endeavor to preserve and realize the promise of our constitutional democracy. I would once again like to congratulate Dennis Johnson and the fine students from Green River High School.

Mr. ENZI

Mr. ENZI. Mr. President, I ask unanimous consent that privilege of the floor be granted to Joe Laird during the remainder of the debate and the votes on this bill we are considering.

Mr. ENZI

Mr. ENZI. Reserving the right to object, and I will not object, some of us have been on the floor all this time waiting to speak, as well. We hope for a chance to speak before we reach the end of the day. I will not object.

Mr. ENZI. I thank the Senator from Texas for his gracious comments. It has been mentioned several times today that there is nervousness in the stock market. There has been since we started debating this issue. I am very convinced that some of that is because people may read some of the amendments that have been suggested and recognize the legislative principle that, if it is worth reacting to, it is worth overreacting to. That ought to be enough to scare anybody. We have had extensive debate. In fact, one reporter I talked to asked me if we were going to pass the McCain bill. The reporter talked about the accounting reform, and I had to say, no, that is the Sarbanes bill we have been working on. It is not stock options, in spite of the threat we had the other day. We usually do bills the way we have done this one--with a lot of cooperative talk. We then make arrangements to develop the best possible outcome. The accounting reform bill before us is designed in such a way that we set up processes that people with accountability and responsibility and knowledge have to oversee. This bill does not tell them exactly how to do the details of accounting. It gives a fair process for accountants to be able to do the details of accounting. In past years, we have decided we knew more than the people who had the expertise in the area of accounting and we have given them direction on how to do it. We almost made that mistake again. For instance, the McCain amendment was very simplistic. In one paragraph it told people how to do accounting that may actually take about 500 pages to explain. It would have caused the most massive restatements in the history of the United States, and restatements right now make everybody nervous. People ought to realize that some restatements are caused by changes in rules, not by people doing things wrong. So investors should always review restatements and determine the actual cause. I certainly hope it is never Congress, but I suspect it very well could be. Another proposal that was going to be put before us was one telling FASB, this Financial Accounting Standards Board, exactly what they were supposed to examine next and what they were supposed to resolve in the next year. I have to say, FASB is working on some important things because they have been examining what Congress has been debating and they know in greater detail than we do what caused the massive restatements. I have to say, I do not believe it was stock options. It was likely a number of other things that need to be investigated. This Financial Accounting Standards Board is diligently looking at these issues. They are looking at some high-profile rules in the areas of accounting for intangibles and accounting for special purpose entities. We have talked a lot about special purpose entities, and our hearings showed that they may have been a cause for the Enron collapse. Also, they are looking at accounting for guarantees and examining a final rule on liabilities and equity. They are also studying whether to create a rule on revenue recognition. Those five things probably put one to sleep, but they are important to have resolved to make sure we do not have problems with companies in the future. We have to be careful now and in the days to follow that we ensure we use all of FASB's expertise, knowledge, and staff to resolve high publicity problems of accounting. In this bill, we have made the Financial Accounting Standards Board more independent. We have provided them with independent funding so they no longer must beg for donations and perhaps encounter a conflict of interest. Through this process, we should not insert ourselves and say we are going to tell them exactly what is important. I would like to thank Senator Sarbanes and Senator Gramm for the extraordinary work they have put into the process. Last week was an extremely difficult week. I thank them for the careful work and review they have done on every single one of the amendments that has been submitted, and the process they established to make sure this bill would not get out of hand, that it would not be an overreaction, and that when we finish it tonight and we can reassure America it is still okay to invest in the stock market. We are fortunate on the Banking Committee to have these two people I consider to be the finest public servants in Congress. They have worked long and hard to assure that the product that came out was bipartisan and reflected the views of as many Members as possible. I also thank the members of the staff who worked diligently on the bill. From my own staff, Katherine McGuire, Kristi Sansonetti, and Michael Thompson. From Senator Gramm's staff, Wayne Abernathy, Linda Lord, Stacie Thomas, and Michele Jackson. And from Chairman Sarbanes' staff, Steve Harris, Steve Kroll, Dean Shahinian, Marty Gruenberg, and Lindsey Graham and Vince Meehan. All of these staffers have spent many late nights and weekends working to build this legislation. This legislation is badly needed. The markets have been in a steady decline for several months now. While I do not believe it is Washington's job to step in every time the market is in a decline, I do believe that when markets move as a reaction to illegal or unethical acts, then we have obviously not made penalties severe enough to dissuade this type of behavior. Congress had to act in this climate. However, I would also like to comment on a few things happening outside of the real debate--namely the attacks on SEC Chairman Harvey Pitt. I have to say that Chairman Pitt and I may not always agree, but I believe the recent attacks on him to be unwarranted. Mr. Pitt has come under fire for having represented some of the accounting firms who have been criticized in recent restatements. I believe Chairman Pitt's work in the private sector is a great asset to investors. We need individuals who are willing to work in government who know and understand the industries they regulate. I do not want lifelong government bureaucrats monitoring these companies. These restatements did not all of a sudden appear when Chairman Pitt was confirmed. In most cases, they begun during the late 1990s when companies became intent on not seeing the Internet bubble burst. I have to ask what was going on at the SEC while these companies were filling all of these false financial statements? What I imagine happened was that the companies, who are very familiar with who is at the Commission and where the resources are being devoted, thought they could take advantage of the situation because no one was paying attention. Look at what has happened since Chairman Pitt has taken office. He has opened a record number of investigations of restatements filed by public companies. He has taken steps to break the relationship between research analysts and investment bankers. He has supported legislation that will increase penalties on corporate executives engaged in fraudulent behavior. And, he has indicated his support of this legislation, which by the way, I anticipate to be supported by the majority of the Senate later today. The numbers are clear. In Chairman Levitt's last year as Chairman, 503 total enforcement actions were filed. Already this year, Chairman Pitt has filed 415. Officer and Director Bars for 2000 were 38--this year so far 71. Subpoenaed enforcement proceedings in 2000 were 9--this year 18. The numbers go on and on. My point is that Chairman Pitt seems to be left cleaning up the mess his predecessor left in corporate America. I offer my support for these actions taken by Chairman Pitt. Instead of attacking him, I am more concerned about what was happening at the SEC that bred this climate where executives felt compelled to engage in this unethical behavior. Why weren't some of these actions taken three or four years ago? Did the SEC Chairman not see the potential conflicts that could arise out of research analysts getting compensation based on investment banking business? Therefore, I would say that I commend Chairman Pitt for the work he is doing. From what I understand, the actions he is taking at the SEC have struck fear throughout the corporate community that they had better get their act together. This legislation before us now will also go far in restoring faith in the markets. It will provide assurances to investors that we will not sit by and watch executives shatter the retirement dreams of workers while leaving themselves with millions of dollars. It will show the American people that we will work to make financial statements transparent and accurate to make sure they know as much about the company's financial state as possible. The legislation builds an accounting oversight board to oversee the accountants who prepare financial statements of public companies. This board will have broad authority to enforce and discipline rules by which accountants must live. The board will have full access to accounting firms' records and policies to require uniformity throughout the industry when it comes to ethics and independence. Accountants must know that someone is watching over them to require that their work is in the best interest of investors. This legislation will also provide for the SEC to have the resources they need to enforce the law. However, I also do not want this legislation to provide a payday for the trial lawyers. The competitiveness of the accounting industry is at stake and we can ill afford to lose another firm solely because we didn't offer proper protections in this legislation. I am in no way indicating that accounting firms should have new, special protections. The only thing I am asking is that accounting firms aren't exposed to more liability after this bill is enacted than they were before. I am not sure some Members truly understand the situation facing accounting firms. We are down to the final four firms. These are the only firms that have the expertise and resources to audit companies such as Microsoft, Coca Cola, and the thousands other large companies. If we subject them to the will of the trial bar, it will only be a matter of time before we lose the rest of the firms one by one. I know that, given what has happened recently with the restatements, it is easy to be critical of accountants and easy to legislate them. I agree we do need legislation, but what also needs to be understood is that overlegislating could be drastic to the economy. In the long run, if we overlegislate, it could be detrimental for the future of capital formation in this country. Once again, I thank the Chairman for all of the work he and his staff have done with this legislation. I think it is a good bill, and I do intend to support it. I also think it will continue to improve through the Conference process and when all is said and done, investors will respond positively to passage of this legislation. I wish to speak about the Financial Accounting Standards Boards, known as FASB, which has been referenced many times throughout the course of discussion on the underlying accounting bill, the Public Company Accounting Reform and Investor Protection Act of 2002. Some of the pending amendments have referenced FASB and directed or mandated it to change how companies must expense stock options or to perform a study on how to expense stock options. In addition, the McCain amendment sets the accounting standard for expensing stock options, without allowing FASB to set rules on this form of expensing. The Levin amendment mandates FASB conduct a one-year study on expensing stock options, and then adopt a rule based on a narrow set of external parameters. The Levin amendment implicates a desire to have such expensing done. In order to understand some of the problems with these types of amendments, it is important to understand exactly what FASB does. Since 1973, FASB has been the designated organization in the private sector for establishing standard of financial accounting and reporting. In short, those standards govern the preparation of all financial reports. The mission of FASB is ``to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors and users of financial information.'' To accomplish this mission, FASB acts to improve the usefulness of financial reporting; keep standards current to reflect changes in the methods of doing business and the economic environment; consider any significant areas of deficiency in financial reporting; promote the international convergence of accounting standards together with improving the quality of financial reporting; and improve the common understanding of the nature and purposes of information contained in financial reports. FASB follows certain precepts in its activities. One is to be objective in its decision making. Another is to carefully weigh the views of its constituents in developing concepts and standards. But its ultimate determination must be the Board's, based on research, public input and careful deliberation. It also aspires to promulgate standards only when the expected benefits exceed the perceived costs. Overall, FASB was created to serve as an independent agency with an independent agenda. However, FASB is currently funded by companies and accounting firms. The long standing concern was that FASB did not act wholly independently, and succumbed to industry pressures in order to get the funding it needed to operate. Back in 1993 and 1994, when expensing of stock options was an issue, some critics say FASB succumbed to pressure by industry and Congress when it created a dual method of either expensing stock options at the time of grant, or placing the information in a footnote as a form of public disclosure of possible stock dilution. The underlying accounting reform bill fixes this perceived problem of independence and autonomy by providing FASB with funding from both issuers and the accounting firms. Because of this change, FASB will be completely independent from the very companies it will set standards for in the future. This is a good start. It is also important to understand that, historically, FASB has never been directed by Congress through legislation to adopt one particular standard for accounting, including expense accounting. It has also never been directed by Congress to perform a study. FASB's role is not to perform studies for Congress and they should not be bogged down performing them for political purposes. Following that precedent, the Senate Banking Committee made certain nothing in the bill directs FASB to take any particular action. In other words, there is no federal mandate to FASB, nor should there be, if it is to remain an independent authority. In addition, why should Congress, a body without expertise in accounting standards for publically traded companies, set these standards? I, and many other members, as well as Federal Reserve Chairman, Alan Greenspan, believe that Congress has no business setting accounting standards. Instead, the Securities and Exchange Commission and FASB are the entities with the expertise needed to make these types of determinations. Ordinarily, FASB establishes plans with milestones it works towards. Congress should not dictate what plans and milestones it should work towards or address. FASB also never sets artificial deadlines on when to reach a conclusion. As an independent agency, it carefully and deliberately makes its determinations and sets rules, without adhering to outside pressures or timetables. Just as Congress should not set accounting standards for FASB to follow, it also should not set artificial deadlines for FASB to adhere to either. Nevertheless, some members have filed amendments asking FASB to not only take a specific action, but instructing it as to a specific timetable. One amendment actually sets an accounting standard, thereby instructing FASB to immediately change expensing standards. Another mandates FASB complete an expensing study within a year. These amendment set unrealistic timetables and mandates. It is important to remember that FASB already has its hands full with important projects to help improve financial standards and reporting. It is currently working towards promulgating high profile rules in the areas of accounting for intangibles; accounting for special purpose entities; accounting for guarantees; and a final rule on liabilities and equity. FASB has also added to its agenda a project to research and create a rule on revenue recognition. Let us not forget that the improper use of special purpose entities played a role in the downfall of Enron. Stock options had nothing to do with Enron's bankruptcy. The projects FASB is concentrating on are important projects which will help clarify financial statements for investors. FASB itself needs to cue up and prioritize its projects based on what is more important to financial accounting and reporting. Congress should not dictate what those priorities should be or the timetable it must adhere to. If some of the amendments we are looking at are accepted, Congress will establish a bad precedent of setting up a timetable and prioritizing projects for FASB. Congress will be putting stock option expensing--an accounting standard which did not cause the collapse of Enron or the demise of other big companies--at the front of the cue. And another question we need to ask ourselves is whether FASB has the manpower to perform the mandates and timetables Congress would be providing through the McCain and Levin amendments. Already, FASB is shifting its personnel to different projects to try to timely promulgate needed rules. While the underlying accounting bill will help these staffing problems by providing independent funding, in the short term, FASB cannot possibly perform the mandates of some of the amendments within the time frames given. I hope I have given members some solid reasoning on why Congress should not begin setting accounting standards. Should we really be doing something we do not fully understand? There are already agencies to perform this type of rulemaking, and they are the SEC and FASB. They are fully aware of the debate surrounding stock options. We don't need to mandate FASB to make a new rule. I am certain if FASB deems it appropriate, it will be looking at this issue in the future.

Mr. ENZI. In light of the discussions, I have to object.

Mr. ENZI. On behalf of the ranking member of the Banking Committee, I object.

Mr. ENZI

Mr. ENZI. Madam President, I do have to answer some of the questions. I am sorely disappointed that the Senator from Arizona left the floor. He asked some important questions. He has asked three questions about accounting. I don't get to answer questions about accounting very often. I was very excited about that. Now, I do warn people who may be watching in their offices, or somewhere else, that accounting questions often put people to sleep. So it might not always be that exciting for them. But I do have to say, from what we saw, there is no passion like the passion of a repentant sinner. This is not the first time somebody has said we are going to tell FASB what to do. On May 4, 1994, the Senate said: We do not care what you said in your multiple pages of FASB rules, we are going to tell you what to do. And the vote was 88 to 9 the last time we interfered with FASB. I have to tell you, the Senator from Arizona was in the 88. He was one of the people who said: I know how to do this. I know how to do this better than FASB. So listen to me: I am going to vote my conscience on this and dictate how FASB is going to handle accounting on stock options. If he and several other people had not voted to tell FASB what to do at that time, we wouldn't be having this discussion at all. Now we have another amendment. It is very important to pay attention to the wording. What I am trying to do is--as I mentioned, there is no passion like the passion of a repentant Senator--I am trying to keep people from sinning again. There are some very important reasons. We cannot take a complex situation such as stock options, which I think all of us can spell but for which not all of us can account, and put it into a simple little paragraph on how it should be handled. This amendment, which is just one sentence which makes up the whole paragraph, says: Any corporation that grants a stock option to an officer employee to purchase a publicly traded security in the United States shall record the granting of the option as an expense in that corporation's income statement for the year in which the option is granted. One of the problems we are having right now is investors are a little bit shaken because there are restatements of income being done. Not all restatements are because something was hidden. Some of those restatements are because of changes in rules. This will be one of the biggest changes in rules we have made in decades, and the way this is written, while it is intended to move to an expense system, does not really say that. It says that you have to expense it in that corporation's income statement for the year in which the option is granted. There are a lot of options that are already granted. Some of them are outstanding maybe 25 years. It is more common that it be 2 or 3 years. The new stock options are done on a much shorter period of time. Even if it is just 2 or 3 years, what this amendment is saying is, redo your income statements and restate them for the last 3 years for all of your options that are outstanding. We did not make you do that before; now we want you to show a huge change or maybe just a small change, but at any rate a change, and every time a company announces a change--and I have had some call and say: I am going to have to do a restatement and that restatement is going to be upward; you know what it is going to do to my stock; I am showing an increase in profit, and it is going to destroy me. All I can say is, it is the law; you have to restate. This will cause the biggest restatement in the history of the United States, the way it is done. One cannot dictate in very simple language something that will take multiple pages to be able to explain and to allow reconciliation. If we listened to the explanation earlier, it sounds as if companies are writing this stuff off and nothing ever happens with it. That is not true. Every time there is an exercise, every time somebody trades their option for real stock, there is an accounting for it. At the end of each year there is a reconciliation for it to make sure the taxes are paid on the stock options that are exercised. We heard something earlier about $625 million that we are losing because of Enron. It is because they went bankrupt. It is not because they are not reconciling, because they are not paying taxes. They do not have anything with which to pay the taxes. One of the problems with this bill is that we have gotten into a feeding frenzy. I think of Enron as this huge, dead carcass. In Wyoming, we have kind of a pecking order of feeding. There are the grizzly bears, there are the wolves, and there are the coyotes. Each of them come up and take their bite out of the carcass, but not until the previous one has finished, and that is kind of the way that we are handling this bill. We have this huge carcass of Enron, and we are trying to figure out how to get rid of it and make sure we do not have any more carcasses. We have a bill that has the primary right to feed on it. Then we have the wolves, which are the germane amendments, that have the right to feed on it. Then we have the coyotes, which do not have any right until everything else is finished. Those are the nongermane amendments. What we are trying to say is let us get this carcass finished off before we have a whole bunch more carcasses, before the stock market has more problems. They are a little bit worried about us working on this stuff at all, and if they see an amendment like this with the oversimplification being thrust on this legislative body to make a massive accounting decision, they ought to panic. We do not want that to happen. There are a lot of reasons this amendment should not be passed should it ever come to a vote, and I hope everybody would do that. Now, I have an option I had drafted up. I have over 25 cosponsors from both sides of the aisle now. It deals with stock options. What it does is put it back on FASB to come up with a proper solution and gives them some guidelines to look at. That would be the way to handle a massive problem like this with a lot of detail for which none of us, including me, have the expertise. I am kind of fascinated that Warren Buffett is the main authority on stock options these days. As I look at it, there are several camps of people that are opposed to stock options, not opposed to the accounting of stock options. They are flat out opposed to stock options. Warren Buffett is one of those. And that is because when stock options are exercised, it dilutes his stock. I think he probably has more stock than anybody else in the whole world, and I guess if I had more stock than anybody else in the whole world I would have gotten there by being sure that every single piece of that was accounted for. Unfortunately, that is not the case. But that would give one some compunction to make sure that none of it can be diluted, which is what stock options have the possibility of doing. It is also based on the premise that the company is going to grow and expand, and that is why all of the people who are employees are willing to take stock options instead of hard cash. I think all of them would love to have hard cash as Berkshire is doing. I suspect that the hard cash does not come to quite as much as the increase in value of the stock. So given an option between hard cash and potential in a company that you yourself can work in, you yourself believe in, you yourself know can grow, you want to participate in all of that economic growth. So stock options would be something that might lure you from another company, that might lure you into a startup company, that might lure your expertise to where you can make this company grow. One of the questions that was asked was: If stock options are not a form of compensation, what are they? At the time they are granted, they are not anything. There is no assurance of them being worth anything. They are a potential liability, and there are some models for determining how to calculate that. They are very complicated. I am not even sure an accountant can handle all of those things. I think they have computer models now that are designed by engineers that go through this thing to calculate what that worth would be so they could put down some number on their balance sheet. Or they can use the other option, which is to disclose it in a footnote. If I wanted to devote more time to this, I would bring over a chart that shows the disclosure that is in the footnote. So if people read the annual report of the corporation, they know what the potential dilution and value of those stock options are. Then the next two questions are: If compensation is not an expense, then what is it? And if expenses should not go in this calculation, where should they go? Those are two questions built on a false premise. That is why it makes it difficult to answer the last two questions. If you answer the first one, the next two are not answerable. Like I said, if I were one of those people such as Warren Buffett who wanted to do away with stock options, that is the attack I would take. I would appreciate it if they were a little more honest: We just want to do away with stock options. There is another group of people who say all the stock options go to the top employees and consequently they do not want stock options either, but the honest part of that is that they do not want stock options either. I heard all the references to the newspapers that say expense these things. Of course, I know that all the newspapers have all the technical expertise to make that kind of an evaluation. I say that facetiously, of course. Senator Sarbanes and I have been working on this accounting bill for months, and as we went through the hearings that he did with so much care, very carefully picking the people with the most expertise to be able to explain to us what went wrong in the Enron situation and what could be done in the future to prevent that sort of thing from happening again, it was very educational and he did a magnificent job. While we were going through that process, I was keeping notes and he was keeping notes. I think everybody else in the Banking Committee was keeping notes. From those notes, several of us drafted up a bill. I noticed that an editorial in the Washington Post down near the end said something needed to be done, which all of us agree on, and then down at the end it says Senator Enzi's bill is a sham. My first reaction was to get ahold of them and say: Can I talk to the accountant that looked at my bill? Well, the newspaper has journalists, not accountants. It might be a small flaw in expertise even on stock option expensing. I have not seen anything in there since I continued to work with Senator Sarbanes, and some of the principles I had in mind were some of the same principles that he had, and those were easy to resolve. Some of the other ones that I had wound up in the bill and are in this bill that we have before us now. I have not seen any editorial that recognizes their expertise of that evaluation either. There were comments about Chairman Greenspan, and I did read the speech he gave. As soon as I read the speech he gave, I wanted a little bit more information. So I asked if I could get together with him, and he was nice enough to come to my office. Through the discussion, which, again, was educational, I keep learning things every day. This is such a marvelous institution for education. One of the things he concluded with was to say: Yes, they should be expensed, but Congress should not decide how that is done. He was not in favor of us passing something that said how to handle stock options. I think he could see the wisdom or the folly, whichever way you want to consider it. Now, one may have guessed that I am in opposition to the McCain amendment on expensing stock options. I think there are some other ways of doing it better. I think there are ways that it could actually be voted on by this group if it were done better. I do not think the one that is presented is the one that is votable, and I assume he will work with us and make some changes. As we all know, Enron's executives and employees were issued numerous stock options. It is now clear that months before Enron filed for bankruptcy, executives were aware of the true condition of the company. They exercised millions of dollars of options. Enron employees kept in the dark on company finances are left with worthless Enron stock, and retirement savings, while some bad Enron executives absconded with stock openings. The financial fraud causing the collapse of Enron had nothing to do with the company's accounting procedures for stock options. I appreciate my colleagues' effort to try to fix the problems posed by Enron, and perhaps WorldCom and Xerox and Global Crossing as we get into those. Congress must react to what happened with Enron, but it must be careful not to overreact. I have a principle with legislation having watched it for a long time: If it is worth reacting to, it is worth overreacting to. It goes back to the feeding frenzy on the huge carcass that is here--an overreaction, adding things to one up or outbid. While legislation may be appropriate to ensure employees are protected and prevent future Enrons from occurring, we should not do anything to hamper rank-and-file employees from receiving stock in their company. A couple of years ago we passed a bill that went through both Houses by unanimous consent. That bill was so that the rank-and- file employees could get it without more difficult accounting. We said we want the rank-and-file folks to have it. We passed a bill by unanimous consent. That means everybody who was here at the time said yes, that is good, without any amendments. That is tough to do around here. It was a definite recognition we wanted all employees to have stock options. When properly used, stock options can be a marvelous opportunity for all of the employees. In addition, as I mentioned, small businesses and startup companies must continue to have an incentive to issue options, which is often their only means to attract qualified employees. I feel so strongly about protecting stock options for rank-and-file employees in small businesses that on April 18 of this year I testified before the Finance Committee against the legislation in this McCain amendment, although it had more detail to it so it made a little bit more sense. This was revised so it could perhaps meet the test of not being blue-slipped by the House because it has the potential for being a revenue issue. I am against this amendment because it seriously hurts employees, small businesses, startup companies, and in general the high-tech industry and many listed corporations which employ thousands of employees. This legislation will not solve the problem of Enron, that dead carcass I referred to, or WorldCom, which is still out there kicking a little bit, Xerox, and perhaps failing dot-com companies, but instead it will create additional problems for the rank-and-file employees of the small and large corporations because they will no longer get the benefit of stock options. Why? Because companies will no longer have an incentive but, rather, a disincentive to grant them. We have all heard that Federal Reserve Chairman Alan Greenspan and Warren Buffett support the purpose behind the McCain legislation because they believe stock options should be treated as compensation. Admittedly, they may at some point become compensation, but there is disagreement at what point that is. Even Chairman Greenspan admitted to me, as I mentioned earlier, that Congress should not legislate expensing but that the Federal Accounting Standards Board, or the FASB, should make such a determination. This is not an easy determination, although in our discussions we make it sound like an easy determination. Concepts are much easier than the detail. That is what makes our legislating so difficult. We can all agree on huge concepts, but when you figure out the details of how you get to that, it becomes very difficult. Secretary O'Neill disagrees that expensing of stock options is a solution and believes better disclosure provisions would cure the current problem with regard to stock options. The McCain-Levin bill is creating the same debate over expensing stock options on company financial statements that occurred a few years ago. At that time, the solution was to give companies the option of listing the number of stock options issued by a company in a footnote to the financial sheets or directly on its income or financial statements as an expense. Either way, investors and employees have the ability to see how much stock is outstanding before they invest in the company or before they exercise their stock options. These footnotes provide a lot more information to shareholders or investors than you might imagine, or than the supporters of the McCain amendment would like you to believe. Some would like you to believe the average person out there doesn't have the ability to read a footnote, let alone understand it. I think at any meeting of employees they would have people contesting that. They look at some of those annual reports, probably more so than some of the major investors. Some of it is difficult to understand. Financial literacy is difficult but very important when you are investing. It was mentioned that Berkshire buys companies and switches to cash bonuses. It does not cause any problem. The problem is, except cash bonus, you lose your job. Now if they had the option between cash bonuses and a stock option, in a growing company, which would they take? It is hard to tell. Rather than estimate the value of stock options and expense them on the balance sheets, the companies estimate them in a footnote using something called the Black-Scholes model. That is because they don't know what the future value of the stock will be when the option is actually exercised and sold. That is very important because I have seen a number of different proposals on this, and one of them, unless you expensed it and guess exactly what it was at the time you expensed it, you are not allowed to claim any additional expense. But they don't realize these things are reconciled so that there is a running value of actually expensed items. Again, that gets into a lot of the accounting detail that would put people to sleep. I have some fascinating charts I would love to drag out, but I have already lost most of my audience so I won't do that. They use that model because they don't know what the future value of the stock will be when the stock option is actually exercised and sold. So they attempt to make an educated guess. Their footnote predicts what the expense might be and the diluted earnings per share for the outstanding stock. Currently, most companies list the outstanding stock options as a note to their financial statements. Unlike Boeing, Microsoft, Winn Dixie, and a few other companies, most companies do not want to list the options as an expense on their financial statement because it creates a perception of a drop in value of the company, even though the stock options have not yet been exercised. In other words, there has been no expense yet and may not be an expense if the options are never exercised. Yet under the McCain amendment, companies must list these stock options as an actual expense to their company when granted. This would mean taking the estimated value in a footnote and making it an expense to the company. A problem with expensing early on, how do you value stock options which have been granted but not exercised or sold? Almost everyone believes the current practice of using the Black-Scholes method to value stock options as currently used on footnotes is fatally flawed. Under the McCain amendment, companies are going to now have to use this flawed model to make a guess at what the value of the options are to determine an expense to the company. The tax consequences will also be based on this flawed estimate. But later, when some of the stock options are exercised and the value is different than estimated, this amendment provides no opportunity for a reconciliation of company records or taxes. That is kind of an accounting principle that there is supposed to be an explanation for how taxes match up with the books of the company. Yes, we do force different kinds of calculations for taxes than we do for the accounting that goes to the stockholders. But the accountants are able to draw the reconciliation, they are able to show how one number goes to another number. That is a requirement, as well. Currently, when the estimates are placed in the footnote, they appear as what they are, a best guess at their value, with no effects on the company's books and no need for reconciliation of records later. Yet an investor can see what outstanding, possible estimated expense might occur to the company. Another problem with the McCain amendment is it does not provide for a method of reconciliation if the stock options are never exercised. So what appeared as an expense may never happen, yet the value of that stock actually goes down instead of up. No one would buy the option and have it cost more than just going out and buying stock. So it is not exercised. So what appears as an expense may never happen, yet the financial statement prepared months before reflects an expense and a decrease in company profit that never occurred. Meanwhile, the current footnote method shows this estimate to investors as a worst case scenario of what could occur if all the options were exercised but no reconciliation were required. As a result, the McCain amendment creates a disincentive for companies to issue stock options to those rank-and-file employees. If this amendment becomes law, many companies will cut back on giving stock options to rank-and-file employees rather than list those options as an expense, and create a perception of a decrease in the value of a company when the stock options are not yet an expense and may never be exercised. This means employees will lose a valuable means of increasing their income. But, these companies are not going to cease offering CEOs and senior executives this form of compensation--that is deferred compensation. Big companies will continue to issue stock options to attract the best talent to top levels of their companies, because this is the only way they can get the most talented management personnel. Despite what the media and supporters of this amendment want you to believe, stock options are not issued to just executives. In fact, those who claim only a small percentage of stock options are offered to rank-and-file companies are misguided. For example, Sun Microsystems, which has approximately 40,000 employees, distributed only 9 percent of its stock options to executives in 2000 and 2001. In contrast, distribution of stock options to employees who were not executives was a whopping 91 percent for both those years. This is not an isolated example. In 1998, over 66 percent of large companies gave options to some portion of their non-executive workforce. Of this group, 26 percent granted options to all their workers and another 15 percent gave options to at least half of their employees. A 2000 survey of Pricewaterhouse-Coopers and the National Association of Stock Plan Professionals reported 44 percent of 345 large domestic companies with stock option plans made grants to all employees, including hourly employees. The San Francisco Chronicle reports that in the technology sector, this percentage is even higher. Of the top 100 e-commerce companies, 97 percent give options to all their employees. The San Francisco Chronicle also points out that: Ten years ago, about a million workers were in a few hundred employee stock programs around the country. In 2001, that number had grown to 10 millions Americans receiving stock options. The National Center for Employee Ownership confirmed the trend is toward more non-managers receiving stock options. However, the Levin legislation will stop this trend by having a negative effect on companies which offer stock option compensation packages to their rank- and-file employees. The McCain/Levin Amendment will also hurt small businesses and start-up companies which cannot afford to offer the salaries larger companies give, so they offer stock options as an incentive to attract highly-skilled employees. And it works. They do not have the hard cash for bonuses, but they have stock options. In turn, employees that risk working for start-up companies have the ability to make much more money than through traditional methods of payment by salaries or wages. The National Commission on Entrepreneurship points out that, without stock options, startup companies which are now household names, like Intel, Federal Express, Apple, Dell and Starbuck, would not exist. In addition, the McCain-Levin bill will cause the whole tax structure to dramatically change. Currently, when stock options are granted or issued there is no tax consequence for either the employer or employee. But when stock options are exercised, the employees are taxed as if it is ordinary income. The income amount is based on the difference between the market price and the exercise price. Of course, if it goes down and there are not stock options exercised, then there is no income tax because there is no gain. I do have some charts, again, too, that show that the Federal Government does receive the taxes that are due, unless there is a bankruptcy. At the same time, the employer can take a deduction based on the amount equal to what is considered income to the employees. For example, if the amount is $25,000 worth of income to employees, the company may take a deduction based on the same amount, $25,000, times its marginal tax rate. If the marginal tax rate is 35 percent, the company would have a tax savings of $8,700. This deduction provides a useful incentive for a company to offer options to its rank-and-file employees. Unfortunately, the McCain-Levin bill will force companies to list the numbers of stock options issued as an expense on its financial statement before they can take the current tax deduction. And they way that this particular amendment is written, it will have to be a restatement for all the years for which there are stock options out. As I mentioned, this added expense to the financial statement alone is a disincentive for companies to issue stock options. In addition, under the McCain-Levin amendment, the tax treatment of the deduction totally changes, becoming much more complicated because it involves valuing stock that has never been exercised. The tax complexity created by this amendment is another disincentive for companies to issue stock options to rank-and-file employees. Add to all of this, the fact that stock options are not all exercised at the same time. But that is the optional part of it. When you are given a stock option, you have the control over when you personally want to take the stock option or not take the stock option. Then there are some other interesting amendments out there that could deal with stock options and whether lawyers could ever exercise them, or whether they would have to reinvest them--a lot of complications. But even assuming they are exercised at the same time, the McCain amendment imposes much more complexity to the current system. Again, I have some charts that could show how all that complexity comes about, but it looks as if we are ready to move on to another decision here so I will pass on that. If I have confused anybody, I know that I have not confused them nearly as much as if I showed them how this actually worked. This is not easy stuff. I guess that is what keeps accountants in business. It really isn't all the taxes that people pay, although a lot of the revenue comes from figuring the taxes. I do hear from accountants who say: You really need to simplify the system. Yes, I do hear from accountants that way--not just about this system but the tax system as well. There is plenty of work out there for them to do and not enough accountants, and there are less and less every day. However, I think I have made one thing crystal clear--99 Senators with no accounting degree, and 1 Senator with an accounting degree, have no business trying to rewrite the accounting methods of publicly listed companies. In other words, if you or your staff don't understand any of this, then you shouldn't vote for the McCain-Levin amendment. Instead, the Federal Accounting Standards Board, or even the Securities and Exchange Commission, have much more expertise to make these determinations. We can direct them to look at current accounting methods, rather than passing specific legislation on replacing the current system. We can direct them to look at possibly developing a better pricing model to value stock options than the Black Scholes method. We can ask it to look at possibly improving disclosure provisions to better inform investors, including using plain English and charts and graphs. We should direct them to create rules that continue to promote ownership of company stock by employees, rather than providing disincentives to companies in granting stock options. Let's let the entities with expertise study and recommend what will prevent future Enrons. Otherwise, we may create a remedy that is worse than the disease. As mentioned before, I worked with Senator Lieberman and Senator Allen and Senator Boxer and numerous other Senators to come up with an amendment that would give some direction to FASB. It would show them that we do want them to take a look at this, that it is a priority, and that we would like to have a solution as soon as possible, but not one that will destroy the entire market, not one that will require retroactive restatements for all of the companies to bring them up to a specific present point. There will be companies that will choose to do that, but in the present atmosphere that could be very detrimental to the entire stock market. So I hope we will not try to go with something oversimplified as the McCain amendment is, and that we will take a look at making sure that options are treated properly, as we are trying to do in this bill, with all accounting. We are trying to set up a mechanism--a mechanism, not specific language on accounting--a mechanism for determining proper accounting, and I think the bill before us does a good job of doing that. It sets up oversight for discipline and ethics. It will be the first time that we have had centralized any profession. But it will solve some problems, and it needs to be done quickly for the sake of the stock market. I am sure we will get to address this at a later time. I heard the threat of the Senator from Arizona. I hope in the meantime that his threat will include a little rewrite that gives a little bit more latitude and puts the situation in the hands of the people who actually have some expertise on this. I yield the floor.

Mr. ENZI

Mr. ENZI. Madam President, this has not been cleared on our side, so I have to object.

Mr. ENZI

Mr. ENZI. I would be happy to interrupt my remarks at that time. I would hope my remarks would appear as uninterrupted.