Advocate Summary

Issue:  Stock Option Expensing
Advocate:  Intel – Jeremy T. Bonfini
Date of Interview: 7/26/02

Basic Background
I’m sure a number of the people you’ve been talking to have been working on the corporate governance issues, at the end of 2001 we were saying wow we really don’t have much to do in 2002 it’s going to be a really low work year and of coarse it hasn’t turned out that way. So of course all of the Enron issues and the Worldcom issues have come to the forefront and it is really big for people in accounting, it’s not so big for us we’re interested in stock options; preventing the expensing of stock options. Just because of the timing of that we’ve been really concentrated on that, it was going through so fast. Outside of that we’re working on trade promotion authority which is huge for Intel we also had Patient’s Bill of Rights at the end of last year, that is pretty much done, it really hasn’t gone anywhere since Sept 11th – we are of course an employer and as such have 60,000 employees and so health care is a pretty big chunk of the pie so we wanted to limit our liability there. And class action reform is important, making sure these suits come to a higher level in federal courts, we don’t have too many class action suits and that’s a good thing but it doesn’t mean that we won’t ever. We’re interested in broadband deployment, we’re interested in getting broadband out there so it’s affordable we don’t care how it’s done we just want the average person to have cheap and affordable broadband so they can download movies with their processors and play them on their computers which is of interest to us. And the last major issue we were following was digital rights management, it’s about pirating, we are again pirating and we want to stop it, unfortunately Senator Hollings bill would require the government to mandate tech solutions that would require us to build in content protection into our products which is not the best way to get high-performance PCs. So we wanted to develop an industry solution not a federally mandated solution. But so stock options, keeping them out of the mix, that legislation, which wasn’t part of any corporate governance package but was considered part of the corporate governance package at one point didn’t happen so that’s what we’ve been most active on this week.  

Prior Activity on the Issue 
None mentioned.

Advocacy Activities Undertaken
The biggest activity on the stock option legislation proposed by Senators McCain and Levin was an employee grassroots appeal. We said this legislation could well endanger your stock options if Intel is forced to expense them. So we got employees to send about 17,000 letters to the Hill to their members of Congress, to block this provision and we were very successful there with our employees. The think that people don’t realize is that probably over 90 percent of our employees own stock. And there are secretaries that are millionaires and have second and third houses because they started working for Intel 20 years ago and there are still a lot of multimillionaires walking around that open up mail at Intel. So it’s something that hits home to Intel employees. A lot of other companies have very limited grants, reserved only for their executives but it’s part of your compensation at Intel. 

This was an exercise in making something not happen as opposed to making something happen. 
The speed with which they were pushing this through made us work a lot faster. It was understandable with the outrage over Worldcom. And stock option expensing, Senator Daschle pretty much said it wasn’t going to happen and most of the leadership were in agreement with him, so it wasn’t something we were terribly worried over but it was definitely something we wanted to put to bed with due speed. 

Future Advocacy Activities Planned
None mentioned.

Key Congressional Contact(s)/Champions
There are a lot of members that don’t understand it and see it as a CEO type thing. But members of congress that represent high tech employees they understand it, so the members in California, Washington State the members there are great and Oregon, they understand how it works, and there are a smattering of pro-business members across the country, people that have been in business themselves and understand the issue and that it’s not just executives that get the grants. 
Our home senators, Feinstein agreed with us and Senator Daschle was of coarse in agreement and Phil Gramm was critical on this issue we also met with Oxley, some of his staff, and Chris Cox from California and some of the leadership as well. 

Targets of Direct Lobbying
None mentioned.

Targets of Grassroots Lobbying
The biggest activity on the stock option legislation proposed by Senators McCain and Levin was an employee grassroots appeal. We said this legislation could well endanger your stock options if Intel is forced to expense them. So we got employees to send about 17,000 letters to the Hill to their members of Congress, to block this provision and we were very successful there with our employees.

Coalition Partners: Names/Participants
Virtually every high tech company in Silicone Valley, you name the company, Cisco, HP, Microsoft, virtually every tech company has stock as part of the compensation package and they have been all very active. Part of the coalition is the American Benefits Council, I mean it’s just everyone inside and outside Silicone Valley that is tech, it was an all hands on deck issue, it’s not often that all the companies can agree on an issue, it really galvanized tech. 
	
Other Participants in the Issue Debate
Tech Net was involved, they are Silicone Valley, it is pretty much a political and to a certain degree lobbying arm of Silicone Valley, they were heavily involved. 

Ubiquitous Argument(s) and Evidence
What the legislation would do is force Intel to expense them in our accounting statements.  And the problem with that is first of all when Intel grants stock options there is no cost to us, there is no real cost at that time if it is granted over time, say I am granted 500 shares over 5 years and I get a hundred each time. Well right now the stock is at a dramatically different value because stocks have gone down, and so every time someone exercises those options – buying them from Intel, we don’t when you get a grant, it’s not like a scholarship grant we don’t just give them to you, just here’s 500 stock options and we are giving them to you, at Intel you have the option to buy them at that price, the price freezes in time, the theory is as the value of the stock goes up so should the options become increasingly valuable, the exact opposite happens when the stock is going down. So the value of them changes, and if Intel is forced to expense them all upfront and the value goes down, they get a tax credit every time that we would have to expense it, we would have to restate our financial earnings which would create more uncertainty among the investors. 

Secondary Argument(s) and Evidence
There is no real unambiguous way to expense stock options, there are several different theories on how to expense them but there is a very gray area in forcing a company to expense something that can change over time. For example, if Intel goes out and buys a table, you pay for the table at a price and you can expense it, the value of the table doesn’t change and it’s purchased, the problem with stock options is that they can change and if companies were forced to expense them their financial performances would degrade even further. And having said that there are multiple ways to expense it and we were forced to expense it and it went down in price would we get credit back for it, and nobody has any good answers on how to do it. It is a very uncertain and risky way to do things when no one can even agree on how to do it, And a lot of companies, start up companies, would withdraw these options and you know, California was built on stock options and in many cases creating huge amounts of wealth and boosting the economy. And forcing companies to expense them, new startup companies that don’t have a lot of cash to pay their employees they’re able to, employees are willing to take a risk with the stock as opposed to getting cash compensation, when a new company wouldn’t have cash compensation to spend on salaries – you know it can be very rewarding and it can not be, it’s all part of the risks in life. And not only would it be an economic hit, and an unreliable system but it would force a lot of companies to be unprofitable and a lot of companies would stop offer stock options. 

Targeted Arguments, Targets, and Evidence
None mentioned.

Nature of the Opposition
I can’t think of any groups in support of the legislation off the top of my head, I think some of the public interest groups may have weighed in on it but…well the media…I’ll come back and say the media was the biggest interest group. They were lobbying hard for it, unfortunately, and as usual they were misinformed and they became kind of populist, in the New York Times and the Washington Post and all those great guys, but the media is the number one lobbyist for it. 

Ubiquitous Argument(s) and Evidence Articulated by the Opposition 
They were arguing the fact that it would create more transparency in corporate accounting, when we already do, in fact, report our options in our reports, it is a sizable footnote as to what is granted in the expense, and that this would just create greater transparence when in fact it is already disclosed, and some even argue it would prevent another Enron or Worldcom when in fact it wouldn’t.  

Secondary Argument(s) and Evidence Articulated by the Opposition
There is also a bit of a populist issue. There is a perception on the Hill that the people getting these options are CEOs, CEOs do get options, but the overwhelming majority of our options, over 80 percent go to people outside the corporate office. And they’re arguing that this is just a way that CEOs are being overpaid and circumventing the will of the board and the stock holders by doing it. And well that may be true in some cases, some companies give their CEO 50 or 60 percent of the options or more but at the same time it would damage our programs that give them to all employees. 

Targeted Argument(s) and Evidence Articulated by the Opposition (and Targets)
None mentioned.

Described as a Partisan Issue
No.

Venue(s) of Activity
Senate

Action Pending or Taken by Relevant Decision Makers
No action pending.

Policy Objective(s) and Support for/Opposition to the Status Quo
Support the status quo, opposed to changing status quo treatment of stock options. 

Advocate’s Experience: Tenure in Current Job/Previous Experience
I’ve been here since October of 1989, a jack of all trades master of none, all the lobbyists in our office are focused on one specific issue, I do the PAC and the grassroots programs and then I started lobbying as well, I worked on the Patients Bill of Rights, I’m kind of doing out reach to the Hill and maintain our relationship with the Hill so I need to know a little bit about everything. 

Reliance on Research: In-House/External (Code for Organizational Advocates Only)
We belong to a lot of associations, we don’t do a whole lot of think tanks, we’re members of the Progressive Policy Institute they are a wing of the DLC, the Democratic Leadership Committee. We do belong to a few of things. We do a lot of our research in-house. Government affairs receives a lot of information from our business groups our lobbyists more or less represent different groups, HR, trade, licensing so we get a lot of that information from business groups and the coalitions which are more single issue groups, coalitions usually have experts associated with them. Less is more when you go to the Hill, we boil it down to one pagers, that’s far more effective. I think that if we are going to do a hearing we do a lot more paper a lot more background in the way of testimony. But when knocking on doors less is more. 

Number of Individuals Involved in Advocacy (Code for Organizational Advocates Only)
Nine.

Units in Organization Involved in Public Affairs/Policy (Code for Organizational Advocates Only)
We have about nine here, we’ll have an environment and safety lobbyist and then a press person that handles Washington DC press, a guy who handles broadband, a guy who handles legal issues, a lady who handles trade issues, a gentleman who handles export issues and tariff issues.

Advocate’s Outstanding Skills/Assets (Code for Organizational Advocates Only)

Type of Membership: None, Institutions, Individuals, Both (Code for Organizational Advocates Only)

Membership Size (Code for Organizational Advocates Only)

Organizational Age (Code for Organizational Advocates Only)

Miscellaneous