Carl Levin

Mr. LEVIN

Mr. LEVIN. How much time do I have remaining?

Mr. LEVIN. I ask unanimous consent that I yield to the majority leader for whatever time he wishes to take and that time not be taken from the few minutes I have remaining, and that the floor be returned to me at that time.

Mr. LEVIN. It would be FASB's call.

Mr. LEVIN. The amendment directs FASB to review the issue and adopt an appropriate standard. Those are the words in the amendment. I must tell my good friend from Maryland, however, that there is a history here that cannot be ignored. The history is that FASB tried to adopt a standard in 1994. They said what the right standard was. They were beaten back and brow-beaten and pressured, so they had to give up what they believed is right. That is in their own history. Then they recommended to corporations to expense options, because that is the right thing to do. But they offered an option to corporations to simply disclose the value of options in their financial statement in a footnote. They left that option open. So I have two hopes here. One is that there will not be an objection to a vote on this amendment. For the life of me, I cannot see how anybody can object to a vote on an amendment, which simply tells the independent accounting standards board to reach an appropriate decision. Now, we did intervene 8 years ago, and I believed it was wrong for us to intervene. Nine of us voted no; 90 voted yes. We told them: Do not change the rule; do not expense options. In my judgment, it was wrong procedurally and it was wrong in terms of the substance. But it is my hope that, No. 1, we will be allowed to have a vote, and, No. 2, it would be my expectation, however, if it is left to the independence of FASB, that FASB would continue to do what they said was the right thing, which is to expense options. It is left to their independent judgment to reach an appropriate conclusion under the language of my amendment.

Mr. LEVIN. The Senator is correct.

Mr. LEVIN. I am happy to yield.

Mr. LEVIN. I believe I do recall the objection to the request, and I would rather let the Record speak for itself as to the other matters because I think the issue before us is a somewhat different issue than we faced on the McCain-Levin amendment last week. Now we have a Levin- McCain-Corzine amendment, which is somewhat different. I supported Senator McCain's amendment, and, indeed, I have been very active in trying to get this accounting rule adopted in the way the independent accounting board wants to have it adopted. That is the key emphasis.

Mr. LEVIN. I am happy to.

Mr. LEVIN. I would rather do my unanimous consent request at the end of the time, rather than at the beginning of the time. I make a parliamentary inquiry. If I make a unanimous consent--

Mr. LEVIN. I wonder if I can yield on the time of the Senator from Arizona, because time is so limited here that I am going to have very little. I think the Senator has a half hour and, assuming that the Senator can be recognized, I believe that I only have about 10 or 15 minutes of time remaining. I wonder if the Senator from Texas would permit that I be allowed to yield to the Senator from Arizona, if the Senator from Arizona is willing to ask a question to be taken out of his own time.

Mr. LEVIN. I thank the Chair. I will at a later time ask unanimous consent that the pending second- degree amendment be laid aside so I can offer a germane second-degree amendment relative to stock options. My amendment, which is at the desk, would direct the independent accounting standards board to review the accounting rule on stock options and adopt an appropriate rule within 1 year. It should not be necessary to seek unanimous consent. The whole purpose of our postcloture rules is to allow those of us who have germane amendments such as this one to offer that amendment, to have it voted on. It is a frustration of the clear intent of our rules to not allow germane amendments to be voted on after cloture is invoked. We have a strict rule. It is called cloture. It ends debate. When cloture was invoked, I had pending an amendment which would have given the Securities and Exchange Commission greater powers to impose civil fines administratively. It is an important addition to SEC powers. They now have that power over brokers, but they don't have it over corporate directors. They don't have it over corporate managers. They ought to have the power to impose civil fines administratively--subject, of course, to appeal to the courts--relative to corporate directors and corporate officers. That amendment, as relevant as it is to this bill, was frustrated when cloture was invoked and when all the time up to that vote was utilized so that my SEC amendment was not allowed to come up for a vote. Now we are in postcloture. Now we are under postcloture rules. The question is whether or not the intent of those rules is going to be carried out, which is to allow those of us who have germane amendments to have a vote on those amendments. The amendment on which I would like to have a vote cannot be voted on because there is a pending first-degree amendment and a pending second- degree amendment. So the second-degree amendment would have to be laid aside in order to allow a vote. As long as the opponents of this stock option accounting amendment don't allow the first- and second-degree amendments that are pending to come to a vote, we are foreclosed from offering germane amendments. That is not the intent of our postcloture rule. I believe it is an abuse of the intent of our postcloture rule. I hope it will not happen here. I am hoping against hope that there will not be an objection to my unanimous consent request so that this most critical issue can be addressed by the Senate. If we don't address this issue, it seems to me we are leaving a significant gap in the reforms we are struggling so hard to adopt to try to restore honesty to accounting rules. In 1994, the Financial Accounting Standards Board issued a tentative rule which said that stock options should be expensed like all other forms of compensation. That is what they decided was the right thing to do. Well, Congress intervened. The executives intervened strongly, beat back FASB with huge pressure, all set out in the FASB account of its rule. By the way, one of the most extraordinary documents I have ever read, as a matter of fact, in 24 years in the Senate, is that Financial Accounting Standards Board history of their effort to bring honesty to accounting for stock options, in their judgment, and how that effort was beaten back by pressure from executives and from Congress so that their very existence was at stake if they proceeded in a way which they thought was right. All set forth in the record. It is quite an amazing document. So what FASB did was, they said: We can't survive if we do what we think is right. So what we will do instead is we will urge people to expense options. We will urge corporations to expense their options, but we will not mandate it. FASB said: If you don't expense options, at least disclose the cost of the options as a footnote in your financial statements. That was the way they decided to survive. This body voted, put some of the pressure on FASB, basically told them to leave stock option accounting alone. So we intervened on an accounting issue with a vote of something like 90 to 10 or thereabouts. The executives weighed in. I was at one of the meetings in Connecticut when the executives weighed in heavily on this issue. So I saw the pressure that was brought to bear on what should be an independent accounting standards board. Now we are doing something different in this bill. We are saying to the board that we are going to give you an independent source of funding. We are not going to make you dependent directly for your funding from the very people you are seeking to regulate through your accounting standards. So we are making some progress now by giving them an independent source of funding. What my amendment would do is take what is the most significant post- Enron issue that is left open, which is accounting for these huge amounts of stock options that go mainly to executives, and direct this board that now has an independent source of funding to review-- ``review'' is the key word--this matter and make an appropriate decision within 1 year.

Mr. LEVIN. Mr. President, I wonder if I might inquire as to how much time I have on my allotted time under postcloture rules.

Mr. LEVIN. I will be seeking unanimous consent to have the second- degree amendment laid aside so that I can do so.

Mr. LEVIN. The Senator is correct.

Mr. LEVIN. I ask unanimous consent that the Senator from Arizona, if he is willing, be able to ask a question on his time. I yield to the Senator from Arizona for that question and then I retain the floor.

Mr. LEVIN

Mr. LEVIN. Under the cloud we created in 1994. I would refer my friend to the debate in this body back on May 3, 1994, where the Senate reached a conclusion that it is the sense of the Senate, that was approved by, again, a vote of 88 to 9 or something like that, that the Financial Accounting Standards Board should not change the current generally accepted accounting treatment of stock options.

Mr. LEVIN. I thank the Chair, and I will make a unanimous consent request again on Monday that we be allowed to offer germane amendments in the time that remains on Monday and that we not be precluded by a blocking action which, it seems to me, is a distortion and a misuse of the postcloture rules which are intended to allow 30 hours to consider germane amendments. If that 30 hours is being used up and either being sworn off or not used, it seems to me that then precludes consideration of highly relevant--indeed, germane--amendments which are important to strengthening this bill. I thank the sponsors of this bill. It is a strong bill. There is no reason we should not be able to vote on a way to make it stronger. I yield the floor.

Mr. LEVIN. Mr. President, I see no reason that a vote should not be permitted on this amendment. That is what this objection leads to. I urge we come back on Monday, or whenever we do come back, and I will make this motion again because this is a critical issue, that is not addressed in this bill, which is a big part of the lack of credibility we have right now in our markets. It needs to be addressed in some way. This is a neutral way to do it. The arguments given by our friend from Pennsylvania are reasons to vote no on an amendment. They are not reasons to prevent an amendment from being called up and being offered. I will say again, I don't know where an amendment that is ready to be offered is not permitted to be offered because postcloture one side of the aisle has decided it is going to leave a first-and second-degree amendment standing out there without a vote in order to prevent other germane amendments from being voted on. I don't think that has ever happened. Obviously, we have reached the end of the 30 hours at times and there are still germane amendments that are pending. But this is not that situation. There is no further debate on the Carnahan amendment that I know of. Why not vote on the Carnahan amendment? There is no further debate--or if there is, let the debate take place so that other people can offer their germane amendments. That is being precluded here. I believe it is a misuse of postcloture rules to do that. That being the situation, I will be offering a unanimous consent at this time that my amendment be made in order at 2 p.m. on Monday.

Mr. LEVIN. I will conclude, but I need to reclaim the floor because apparently all time otherwise is counted against my allotted time postcloture. Mr. President, I ask unanimous consent the pending amendment be set aside and that I be allowed to call up the amendment I filed at the desk relative to this subject which I understand has been ruled germane.

Mr. LEVIN. I am happy to yield.

Mr. LEVIN. Madam President, in a moment I am going to ask unanimous consent that the pending amendment be set aside and that I be allowed to call up amendment No. 4283. This amendment relates to stock options. The amendment is one line. It says that the standard-setting body for accounting principles that is set up in this bill shall review the accounting treatment of employee stock options--just review it--and shall within a year of enactment of this act adopt an appropriate generally accepted accounting principle for the treatment of employee stock options. They shall review it within a year and adopt an appropriate standard. There has been a huge amount of debate about stock options. Recently the Republican Senate staff of the Joint Economic Committee issued a report about ``Understanding the Stock Option Debate.'' In that report, it concluded that, ``Basic principles of financial accounting imply that stock option awards should be treated as a cost in corporate financial statements, and this cost should be recognized at the time of grant.'' We have a Republican Senate staff report which, after reviewing all of the pros and cons, concludes that stock option awards should be treated as costs in financial statements. It is a very strong document. It is an analysis that I recommend to people to read. Our amendment, however, does not do that. Our amendment, which is an amendment I am offering on behalf of myself, Senator McCain, and Senator Corzine, simply says that the board we are funding in this bill should review the accounting treatment of employee stock options and adopt an appropriate standard. How anybody can be opposed to the proper accounting board doing a review and coming up with an appropriate standard is something beyond my understanding. I can understand the arguments, the pros and the cons. I have been through them for 10 years. I have argued that we ought to treat stock options like any other form of compensation, and I believe we should. But I do not set accounting standards. That is not my job. That is the job of this newly independent board to set accounting standards, and we should urge them to take a look at this. This is where this matter should be referred and at a minimum, Madam President, I ought to be allowed to get a vote on this amendment. This is a germane amendment. We are in a postcloture situation, and I do not know of a time--there may be; I have not been around here as long as some--but I do not know of a time when a germane amendment postcloture has not been permitted to go to a vote. Apparently, that is what is going to happen, from what I hear. I hope it is not true, and I do not want to be unfair to my good friend from Pennsylvania. He may not object. But I think it is a misuse of our rules now I am going to get to a process issue--to not permit a germane amendment postcloture to be voted on. And this amendment is germane. On the stock option issue, we have everyone from Alan Greenspan to economists. Let me read the list of some of the people who support a change in stock option accounting: Alan Greenspan; Paul Volcker; Arthur Levitt; Warren Buffett; TIAA-CREF, one of the largest pension funds in the United States for teachers; several economists; Paul O'Neill; Standard & Poors; Council for Institutional Investors; Citizens for Tax Justice; Consumer Federation of America; Consumers Union; AFL-CIO; on and on. They believe that stock options are a form of compensation, they have value, and they should be part of the expenses on the books of a corporation just as they are taken as a tax deduction at this point. One of the driving factors in the corporate abuses that we have seen are the huge gobs of stock options which have been handed out to executives. Then executives push accounting principles beyond any comprehension to raise the value of the stock and then exercise their options and sell the stock. We have seen this situation repeated in corporation after corporation, and I believe we ought to try to put an end to it, but that is not what this amendment does. This amendment simply says: We are creating a newly independent board. This independent board should decide on what the appropriate standard is. That is why we are providing independent funding for it. I want to read a part of a Washington Post editorial of April 18, 2002: Alan Greenspan, perhaps the nation's most revered economist, thinks employee stock options should be counted, like salaries, as a company expense. Warren Buffett, perhaps the nation's foremost investor, has long argued the same line. Skipping down: The London-based International Accounting Standards Board recently recommended the same approach. In short, a rather unshort list of experts endorses the common-sense idea that, whether you get paid in cash or company cars or options, the expense should be recorded. . . . Why does this matter? Because the current rules--which allow companies to grant executives and other employees millions of dollars in stock options without recording a dime of expenses--make a mockery of corporate accounts. Companies that grant stock options lavishly can be reporting large profits when the truth is that they are taking a large loss. In 2000, for example, Yahoo reported a profit of $71 million, but the real number after adjusting for the cost of employee stock options was a loss of $1.3 billion. Cisco reported $4.6 billion in profits; the real number was a $2.7 billion loss. By reporting make- believe profits, companies may have conned investors into bidding up their stock prices. This is one cause of the Internet bubble. Then this editorial goes on: But nobody wants to ban this form of compensation; the goal is merely to have it counted as an expense. Madam President, that is what most of the accounting profession, economists, and business people, other than those executives who are taking such huge amounts of stock options, want to do. This is what the Accounting Standards Board wanted to do in 1993, but then were beaten down so badly that they had to come up with an alternative instead called disclosure. Even when the accounting board decided to do that--which was not an independent accounting board because it did not have an independent source of financing, unlike this accounting board will have after we enact this bill--and now to read their report of 1994. The board issued an exposure draft called, ``Accounting for Stock-Based Compensation,'' and they decided that stock option values should be expensed. Then they said the draft was extraordinarily controversial, and the board not only expects but actively encourages debate on issues. Then they pointed out in the FASB document that the controversy escalated throughout the exposure process. Then in paragraph 60 of their findings, the FASB board said the following, that ``the debate on accounting for stock-based compensation unfortunately became so divisive that it threatened the board's future working relationship with some of its constituents. The nature of the debate threatened the future of accounting standards-setting in the private sector.'' This is an extraordinary document and everybody should read it so people understand the kind of pressure that not only that board was under--hopefully, the newly independently funded board will not be under--but the kind of pressure which exists in this Congress. We have, in essence, a new board, because it has an independent source of funding. We ought to let that board reach an independent conclusion on one of the most controversial, contentious issues we have before us. This is a tremendous bill we are voting on. But it can be strengthened. It is not a perfect bill, and from the point of view of pure fairness and deliberation, this Senate should be allowed to vote on a germane amendment postcloture. I will read one additional paragraph from the FASB document report to set out the extent of the pressure which exists in this area and why it is so important there be a review of this whole matter by an independent board. In December 1994, the board said it decided that ``the extent of improvement in financial reporting that was envisioned when this project was added to its technical agenda was not attainable.'' Why was it not attainable, the FASB said? Because the ``deliberate, logical consideration of issues that usually leads to improvement in financial reporting was no longer present.'' These are incredible words. This is from the board that is supposed to set accounting standards in this country. They wrote in their report that when their proposal to expense stock operations was issued, it was not attainable because the ``deliberate, logical consideration of issues that usually leads to the improvement in financial reporting was no longer present.'' Why was it no longer present? Because the debate had become so divisive, in their words, that it threatened the board's future working relationship with some of its constituents. The nature of the debate, they wrote, threatened the future of accounting standards-setting in the private sector. Finally, the board, beaten down, threatened with extinction, said this: ``The board chose a disclosure-based solution for stock-based employee compensation to bring closure to a divisive debate on this issue, not because it believes the solution is the best way to improve financial accounting and reporting.'' That was in 1994. We have seen what has happened in terms of stock option abuses because this board, if it had proceeded in the way it thought best, would have gone out of existence. This bill creates a newly independent board, a board that has an independent source of revenue. This bill, it seems to me, is not complete, is not strong, unless we now say to this country that the newly independent board should review this accounting standard and reach an appropriate conclusion. This amendment, which is cosponsored by Senators McCain and Corzine, does not say what that conclusion is. It does not, unlike the McCain amendment which was not allowed a vote yesterday, conclude that stock options should be expensed. It does say we have an independently funded board which should review this matter and reach the appropriate conclusion.

Mr. LEVIN

Mr. LEVIN. Mr. President, Do the Write Thing Challenge, sponsored by the National Campaign to Stop Violence, is a national writing contest in which students express their concerns about subjects such as domestic violence, easy access to guns, and gang activity. DtWT currently operates in 14 cities, including Detroit, MI. In 2002, more than 75,000 students from more than 550 schools participated in the DtWT program. This week 38 Do the Write Thing national finalists came to Washington, DC, to talk to lawmakers about the impact of and solutions to the epidemic of youth violence in our Nation. The national student finalists, along with their teachers and family members, also attended a ceremony at the Library of Congress on Monday. Representatives of the Secretary of Education and the Library of Congress placed the students' writings in the Library of Congress. The writings, ranging from poems to essays to stories, describe the impact of youth violence on the lives of children. Two students from Michigan, Chastity Stewart and Justin Mozader, were honored by the National Campaign to Stop Violence for their writings on youth violence. Justin's poem offers excellent advice on dealing with feelings of anger and aggression. What can I do about the problem at hand? It can't be solved by one man To begin, I must look inside myself And put my violence on the shelf One of the top priorities of the Do the Write Thing Challenge is to address youth violence by drawing attention to the problem of easy access to guns. This is a laudable and important goal. One step the Senate can take to prevent easy access to guns is to pass the Children's Access Prevention Act, which Senator Durbin introduced. Under this bill, adults who fail to lock up a loaded firearm or an unloaded firearm with ammunition would be held criminally liable if a child uses the weapon to kill or injure him or herself or another person. The bill also increases the penalties for selling a gun to a juvenile and creates a gun safety education program that includes parent-teacher organizations, local law enforcement, and community organizations. This bill is similar to a bill President Bush signed into law during his tenure as the Governor of Texas. I support this bill and hope the Senate will act on it during this Congress. In addition to preventing our youth from having unsupervised access to deadly weapons, we should encourage schools to conduct violence prevention programs. We need to provide funding to allow schools to partner with local law enforcement in crime prevention, creative onsite school violence prevention programs, and alcohol and drug counseling. I know my colleagues will want to join me in congratulating Chastity and Justin for their writings and efforts to combat youth violence, and I urge my colleagues to join me in pushing for the passage of sensible gun safety legislation like Senator Durbin's bill.

Mr. LEVIN

Mr. LEVIN. I do not know if the manager has any time.

Mr. LEVIN. Madam President, I ask unanimous consent that I be allowed to proceed until 9:30 when cloture is invoked.

Mr. LEVIN. Madam President, a number of amendments have been pending where we have been unable to get a vote. These are highly relevant amendments, including mine which would have given the SEC administrative powers to impose civil fines. The Republican manager said the amendments were not particularly relevant. Well, we had a highly relevant amendment that goes directly to the issue of abuses by corporate officers and corporate directors. The current fine structure of the SEC does not reach officers and does not reach directors, except by going to court. They have no administrative authority in the SEC to impose civil fines, the way they do with brokers and the way a lot of other agencies that regulate business have authority to do. The SEC does not have the power to impose administrative fines on directors and on officers of corporations. They should have that power administratively. We were blocked in getting a vote, and the amendment which is pending is going to fall if cloture is invoked. That is the use of the rules. But let it be clear what the rules were used to do, which was to prevent a strengthening amendment for this bill. It is a good bill. I compliment the sponsors of this bill. I compliment Senator Sarbanes and his cosponsors that this bill can be strengthened; it should be strengthened. One of the strengthening amendments was blocked from getting to a vote yesterday and will fall if cloture is invoked. We also have a question. What about postcloture? There are 48 germane or arguably germane amendments. The question is whether or not the rules are going to be used again to block votes on germane amendments. I will object to that happening. I will do everything I can to make sure germane amendments, including some that I have filed, are considered postcloture. I thank the manager for yielding. I yield the floor. Cloture Motion