Screaming Penguin - Source Does Matter

For the first time in, ever, the Motley Fool "Rule Maker" portfolio does NOT include Microsoft. The reason it has been removed has nothing to do with any of the normal fickle issues we tech geeks like to balk about, no open source issues, no anti competitive practices issues, no security fiasco issues, etc. It has to do with the big picture and the character of the company. (Granted the tech issues we love to bitch about concerning Microsoft are certainly related to the companys character but none of them is in particular the reason.)

The reason is that Microsoft has decided not to record stock options as expenses.

Recently our congress passed the corporate reform bill, which is really nothing more than political posturing and has no teeth (but you will surely hear about how great it is in the coming months leading up to the election). This bill SHOULD have had a provision to require companies to report stock options as expenses. It didnt, congress bowed to big business where many players want to continue the shell game. True there has been discussion that this will hurt small companies more than large, etc, but I think that is a lot of hooey (and the fools agree). Accurate reporting wont damage anything (as Warren Buffet has expounded many times, including directly TO congress a few weeks ago). There are formulas for calculating the expense, etc, it can be done.

Note that in the mid 1990s, the FASB (Financial Accounting Standards Board, which certainly did already exist, the idea of an auditor to watch the auditors is NOT new) RECOMMENDED that OPTIONS BE RECORDED AS EXPENSES and was ready to force companies to comply but was forced to back off, by, you guessed it, the US congress (source.)

Even after congress failed to act, again, (whats new) some of Americas corporations decided on their OWN to make the switch and be responsible about reporting options (Coke, GE, CA, and more). Microsoft decided not to.

This is regrettable. Companies should act because of what is right, rather than what is mandated by government. We would be better off by far if congress never had to clown around and consider these matters. However, in this case, neither worked, the company has elected not to act responsibly on its own, and congress has proved its inability to act.

In light of this I think it is a great move by Motley Fool to no longer recommend Microsoft. Investors should DEMAND accurate accounting by doing EXACTLY what the fools are doing. Drop the stock. Invest in companies that ARE doing the right thing and stay away from the rest.

Hopefully the fools actions and those of investors can make a difference and can open the eyes of companies to do more accurate reporting.

For more info check the linked Motley Fool article.   Microsofts Out the Window: Motley Fool