No Harry Taylor Moment at the April 10, Town & Country Democratic Club Democratic Candidate Forum – a Question for State Senate Candidate Darrell Steinberg
by Andrew H. Dral

On April 10, 2006 at the Town & Country Democratic Forum I wanted to ask California State Senate 6th District candidate Darrell Steinberg a question. I wrote and submitted the question on the provided form. This is close to what I wrote:

“Dr. Peter Drucker called stock options, “encouragement to loot the corporation.” Dr. Drucker was a famous management expert and consultant. During U.S. federal Senate hearings on Enron CEO Jeffrey Skilling thanked Senator Barbara Boxer for making it possible for him to become rich, because she consistently thwarted stock option accounting reform. In February 2003 you wrote me there is no way to value stock options, so why should I support you since you assisted in the looting of my 401K and IRA accounts?”

My question was never asked.

Granted, maybe my handwritten question was not understandable, but I’m tired of irresponsible Democrats in league with corrupt and unethical corporate interests getting elected. If Town & Country had a problem understanding my question, it wouldn’t be unreasonable to let the participant in the audience ask the question. It could even do more to promote democracy to have the citizen ask the question directly.

If you’re not familiar with Dr. Peter Drucker, he was a management authority, many thought of him as the father of the study of management. He wrote 15 books on management beginning in 1939. His first book was written in 1939, “The End of the Economic Man.” Beginning in 1949 he spent over 20 years teaching at New York University, among other universities. For 20 years, on a regular basis from 1975 to 1995, Dr. Drucker contributed articles as a columnist to the Wall Street Journal. Many of his writings found there way into the Financial Times, Fortune Magazine, The Economist, and The Harvard Business Review, among many others. He had a great impact on the post-war recovery of Japan. When he died -- November 11, 2005 at 95 -- he was teaching at Claremont Graduate University in Claremont, California.

Somehow, I believe Dr. Peter Drucker was more of an authority on this subject than the politicians, like Darrell Steinberg, who continue to follow the corporate propaganda sound bites, see my attached letter from then state Assembly Member Darrell Steinberg. I wrote Mr. Steinberg, in early 2003, to see if he would support accounting reform, but from his response you can see he took the corrupt party line.

Senator Barbara Boxer would have liked to have the chief executive officers (CEOs) decide our accounting standards, with her classic comment, “we can’t stand by and let accountants wearing green eyeshades decide who is going to get the American dream.” She thwarted accounting reform, recommended by the Financial Accounting Standards Board (FASB), for over 10 years. Not only Senator Barbara Boxer, but also many other California Democrats followed the corrupt party line to continue the looting of our retirements, i.e. IRAs and 401Ks, including Senator Diane Feinstein, many House Members – including the former Representative Robert Matsui, Treasurer Phil Angelides, now state senate candidate then state Assembly Member Darrell Steinberg, among others. I say, remove these people from the political scene to save our retirements from corporate graft and corruption.

The following chart shows the damage done by using shareholder equity to buy-back stock options. In 2005 stock buy-backs rose 60% over 2004 for a record $315B. Three out of the four heavy stock option distributor companies, listed below, witnessed absolute declines in shareholders’ equity or book value. Book value is the difference between assets and liabilities. When a company is profitable book value will increase, not decrease. But these four companies had their book value per share, since 2003, decline by 10.9%, 9.8%, 2.5%, and 29.6% for Intel, Cisco, Sun, and Dell, respectively. Book value was destroyed by stock options. If your 401K or IRA owned these stocks directly or had them in an index your wealth was transferred to executives selling off their stock options. The total compensation of the top-5 best paid executives at publicly held companies, from 2000 to 2003, amounted to 10% of all corporate earnings.

A March 19, 2006 article in the NY Times by Gretchen Morgenson put it nicely, a comment about the transfer of wealth from shareholders to managers from Fred Hickey editor of the High-Tech Strategist, “Stock options are the biggest force behind this trend, Mr. Hickey said. First, they dilute per-share earnings at the companies that dispense them, hurting existing shareholders. Then, to try to reduce the burgeoning growth in stock outstanding that results from option grants, companies spend their owners’ cash to buy back shares in the open market. This cuts into the amount of earnings that can be retained by the company and that contribute to shareholder equity.”

                                               

End of Fiscal Year

Fiscal  $s in Millions              $s per Share                     % Percent              

Year    Shareholder Equity    Book Value Per Share 1 Year  3 Year  5 Year

Company        End      2003    2004    2005    2003    2004    2005       Return Return Return

Intel Corp.        DEC    37,846 38,579 36,182 $6.13   $5.94   $5.46      23.5%   -22.9%  -14.8%

Cisco Systems  JUL      28,029 25,826 23,174 $3.88   $3.66   $3.50      21.1%    67.0%    37.1%

Sun Micro        JUN     6,491   6,483   6,674   $2.03   $1.98   $1.98      27.0%    57.4%    -66.6%

Dell Computer  JAN     6,280   6,485   4,129   $2.40   $2.52   $1.69      -22.5%   9.0%      15.8%

Note that returns for the S&P 500 were 11.9%, 58.9%, and 17.6% for 1 year, 3 year, and 5 year returns, as of March 31, 2006, respectively. All the companies, except for Dell, beat the 1 year S&P 500 11.9% return, only Cisco exceeded the 3 year and 5 year S&P 500 returns. In 2005 Intel spent $10.6B and Dell spent $7.2B buying back shares. For the first three quarters of fiscal year 2006 Cisco has spent $5.5B, while Sun Microsystems has spent about ~$1.8B since February 2001, but nothing in fiscal year 2005 or in three quarters in 2006. The damage was done to Sun in the first half of 2001 with a ~$1B stock buy-back.

You can blame members of California’s state Democratic Party for the losses in your IRA and 401K accounts -- allowing the practice of distributing large numbers of executive stock options -- without the proper accounting. Accounting reform was instituted, by nationwide grass-roots effort -- through SFAS 123 established by the FASB, at the beginning of 2006. Unfortunately, many members of California’s State Democratic Party, did everything they could to align themselves with Silicon Valley’s CEOs through TechNet, the Silicon Valley lobbying group, to thwart accounting reform. Roughly, 94 million investors deserved more disclosure in the process of distributing stock options, along with understanding the true cost, expensing on the income statement, at the grant date of the option.

This lack of disclosure has fueled a brewing scandal, 34 companies are under Securities and Exchange Commission (SEC) investigation for falsifying the dates of their executive option award grants, optimizing the remuneration from stock options. Five CEOs and over a dozen other executives have lost their jobs, so far, over the scandal. The scandal was made possible by the help of California’s Democrats.

If we keep voting for these politicians, including Darrell Steinberg, who don’t represent the working class and IRA/401K investors, then the tremendous wealth transfer from the poor to the rich will continue, see the attached letter sent to me February 27, 2003, which mentions a blatant TechNet talking point untruth. These Democratic politicians must be challenged and removed from office for their anti-worker, pro-CEO, and pro-corporate positions that loot our retirements. A recent study of Gen Xers (born between 1965 and 1972) shows 60% will have insufficient funds for retirement. California’s Democratic Party wanted you to believe the cost of options was Zero-0, well not to you or me or our IRAs and 401Ks.

A propaganda piece from Darrell Steinberg’s recent campaign says, “Darrell Steinberg approaches everything with integrity. You don’t get the feeling he makes decisions based on campaign contributions … his work has a strong intellectual appeal.” Baloney, this California Journal quote from July 2002 has to be kidding. When it came to stock options he went to bat for Silicon Valley CEOs over you and me. We must remove the gang in the California Democratic Party, throw the bums out!

Andrew H. Dral “The Rabble -- Janosik”