FASB's Fight Out Front
      Jenkins told the Senate Banking committee that FASB's job is to be unswayed by one industry's argument over the other and make a decision that is best for investors.
     "To create or to tolerate financial reporting standards that bias or distort financial information to favor a particular transaction, industry, or special interest group undermines the proper functioning of the capital markets and impairs investors' capital allocation decisions," Jenkins testified to the committee.
     Last week, FASB essentially voted to move ahead with its proposal for eliminating pooling. This summer, FASB is expected to have a more formal discussion of the pooling issue, with a final vote on the proposal scheduled for later in the year.
     The move flies in the face of Congress, which has urged FASB to slow down. Senate Banking Committee Chairman Phil Gramm, R-TX who presided over March's hearing said FASB should be 100 percent sure that these proposes changes will provide investors with more accurate information about the financial state of a company.
     "My concern is that I don't want accounting standards to color economic reality. I want them to reinforce economic reality," said Gramm.
     Eleven senators sent a letter to FASB asking them to take a more cautious approach to the issue, as has House Commerce Committee Chairman Tom Bliley, R-VA, and Rep. Tom Davis, R-VA. Bliley plans to hold hearings within the next several months on FASB's proposal.
     "Doing away with pooling could have disastrous results," Davis said.
     However, Congress can't do much more. FASB falls under the jurisdiction of the Securities and Exchange Commission, but gets no public funds from Congress. Officially, high-tech companies, like those participating in TechNet, have said they hope that the hearings in Congress will get FASB's attention and eventually will reconsider its path. But others say more drastic moves are needed.

Where There's A Will
     One option is to convince Congress to pass a non-binding resolution telling FASB to rethink its strategy, Nebergall said. It is something that has worked before. In 1993, FASB proposed that companies reduce earnings by the estimated value of stock options granted to employees, a proposal that angered almost the entire of the U.S business sector, including the high-tech industry. In 1994, the Senate passed a non-binding resolution telling FASB to back off, and it compromised by allowing companies to report the value of stock options as a footnote on their income statements.
     Another option is to convince FASB to curb its efforts until several studies related to the matter can be completed. One is to be conducted by the SEC, which would look at the importance of mergers and acquisitions to the economy. The other, to be led by Jeffrey Garten, dean of Yale University's School of Management and a former Clinton administration official, would examine how to value the "intangible" assets of a company, i.e., the trademark, the CEO's ideas or the company's market value, so that the pooling method could supply investors with a better picture of the financial state of a company.
     "We all agree pooling isn't perfect, but that doesn't mean eliminating it is an answer," Nebergall said.
     If the pooling method is eliminated, many say Wall Street will then just ignore the income statement of companies that have conducted a merger, because the charges to the company's income statement don't reflect reality. This leave small investors out in the cold who may not be as adept at reading financial statements to take into account the sudden change in accounting.
     In addition, high-tech companies said the change would just make many mergers too expensive, and that will severely hurt economic growth in part because venture capitalists will be reluctant to invest in small companies if mergers are considered too expensive.
     Nebergall also explains that companies have two options for growing: one is to pay for in-house research and development, and the other is to buy products and ideas that they can remarket for themselves. Again, if mergers are more difficult, it will slow the entire growth of the industry.
     "Every old economy company is becoming a new economy company…this is a matter for Main Street," said John Doerr, a well-known venture capitalist and co-founder of TechNet. "Are we willing to risk hindering this explosion in innovation by eliminating opportunities for companies to combine their efforts to make an even larger impact?"
     It is with arguments such as Doerr's that the industry hopes eventually will prevail. Mark Gitenstein, an attorney with Mayer Brown & Platt who has been hired by TechNet to educate members and lobby on the issue, remains optimistic that FASB will see the light. Particularly because Jenkins himself headed a study in the early 1990s that concluded that pooling should not be eliminated.
     "I have a lot of confidence in Ed Jenkins. I think he will come to the right conclusion in the end," Gitenstein said.

- by Bara Vaida