Geelmuyden.Kiese

TANKER

UP WITH OPTIONS!
15.11.2006

From time to time the fields of capitalism need weeding. Options as gifts given to and from Norwegian business leaders are weeds that need rooting out.

Just like most other weeds, options packages suffocate a good crop. Share options provide a right, but not an obligation, to buy a share at a fixed, in reality low, price at a given time in the future. As an instrument for rewarding good leadership options are not effective. A leader provided with options is not in the same boat as the owners. While the owners provide money and take risks, the leader with options has little downside apart from a possible options premium. Consequently, the leader may safely run a big risk in order to achieve a profit on his options while the owners loose if things go wrong. For a leader to be in the same boat as the owners, the leader must himself be an owner and buy his shares with his own money.

In many companies, we do in fact see that options govern rather than motivate the management. Leaders with pockets filled with options are tempted to let expiry dates and stagnant periods decide the time for publication of news. In addition, the leadership focus may be one-dimensional and short-term. Leaders governed by options are tempted to cutting costs rather than taking the long-term view. It might just happen that long-term investments take effect only when the options period has expired. In which case only the company and not the leader will benefit! On top of it all, the options value is also governed by the share price performance - not solely reflecting the management''''s competence. Share price performance is also dependent on the current economic climate as well as coincidence and chance.

The worst thing about weeds is that they''''re spreading. Members of boards who themselves possess options packages have a tendency to be generous with options further along the line. As Norwegian top leaders often can be found on each other''''s boards, a culture for camaraderie develops. This undermines the board''''s important supervisory function and what we get is a closed options aristocracy protecting its own privileges. This is not how we want the Norwegian business sector to function. Most of the top leaders of my acquaintance pride themselves on doing a substantial piece of work for the community they''''re governing. They need no options package in order to do a good job. The packages put the leader in a dubious position because own interests may have superiority over the company''''s interests. Nobody profits from this. Least of all the leader himself.

Hans Geelmuyden
This article has also been published in "Aftenposten" on November 14th, 2006.

Hans Geelmuyden