4th Quarter 2007

In This Quarter's Issue:

Do the Markets Care?
Backdating of Stock Options
Culture and Compliance
Burden of Proof
Key Assumption in Option Valuation

Developments in Option Valuation
Effective Committees
Venture Financing
Entrepreneurial Wealth Concentration

Printable Version

Introduction

Welcome to this initial issue of the Path Partners LLC newsletter. This publication is directed toward owners and senior managers of small companies as well as professional advisors who may assist such individuals in guiding those businesses. The primary focus of this newsletter will be assisting owners and managers in building, measuring and capturing the long term value of their companies, admittedly, within the context of identifying and developing what the author views as effective business practices. The publication's topical areas may periodically include broad economic matters, business valuation methodologies, important valuation-related tax court cases, timely executive compensation and stock option issues and private capital formation strategies, statistics, trends and process management suggestions. Thanks for visiting!

Do the Markets Care?

Former Federal Reserve Chairman Alan Greenspan states in his recently published book, The Age of Turbulence, that "a simple test for any retirement system is whether it can assure the availability of promised real resources to retirees without overly burdening the working-age population."¹ Will U.S. federal government policy makers and legislators successfully confront the reality of future Social Security and Medicare obligations? The U.S. fiscal budget and capital market implications associated with this problem are unprecedented and time is very clearly of essence!

An excellent analysis of the unfunded Social Security and Medicare obligations appears in Jagadeesh Gokhale's and Kent Smetters' March / April 2007 Financial Analysts Journal article entitled "Do the Markets Care about the $2.4 Trillion U.S. Deficit." Gokhale and Smetters contend that had the U.S. federal government accounted for the present value of unfunded liabilities of the Social Security and Medicare Parts A, B and D programs in 2006, the federal budget deficit and national debt would more accurately have been represented as $2.4 trillion and $63.7 trillion, respectively, during / at 2006.² Did your eyes require a double take of the 2006 federal budget deficit? Indeed the suggested units are "trillions". Perhaps understating the obvious Gokhale and Smetters contend that "an imbalance of $63.7 trillion is hard for the average person to fathom. It is larger than the value of the entire capital stock in the United States, including all property, land, buildings, roads, homes, automobiles, factories, bank accounts, stock certificates and consumer durables."³

An acre of
performance is
worth the whole
world of promise.

Jeremiah Howell

The authors' estimates of Social Security and Medicare obligations are indeed less than those provided by the programs' trustees as reflected in the trustees' annual reports published April 23, 2007. In a supplement to the Gokhale and Smetters article, written by Jerry Tempelman of the Federal Reserve Bank of New York, in the July / August 2007 Financial Analysts Journal, Mr. Tempelman notes that past estimates of unfunded obligations have grown significantly during the past 4 years due to "changes in demographic and economic assumptions but [the situation] is overwhelmingly a result of inaction in addressing the problem."⁴ Mr. Tempelman's estimate of the current present value of unfunded obligations from Social Security and Medicare programs is approximately $87.9 trillion and he states that 1/2 of this obligation is attributed to current program participants.⁵

Gokhale and Smetters believe the capital markets have not successfully recognized the growing forward-looking budget imbalance and state several theories in attempting to explain the lack of recognition. Included among these theories are: (1) Explicit government debt is real, whereas unfunded liabilities are not; (2) Stine's Law — that which cannot go on forever won't; (3) the future is too uncertain to be predictable, and (4) foreign investors will bail us out.⁶ Perhaps the magnitude of this issue is simply too significant for individuals or the collective capital markets to assimilate?

I began supporting the non-partisan Concord Coalition in 1995. This organization promotes the development of responsible fiscal policy and among the sound proposals consistently made by this organization is means testing of entitlement programs. Means testing is undoubtedly a controversial subject, but short of enacting significant increases in payroll taxes or dedicating enormous future shares of the federal government's general revenue fund to Social Security and Medicare, few other options realistically exist. Alan Greenspan, in fact, states that "I expect the Medicare funding imbalance to be resolved by rescinding the benefits of the more affluent. The frenzy of politics and the so-far-intractable continued increase in income inequality, in my judgment, leaves no other credible political alternative."⁷

Backdating of Stock Options

I have recently reviewed several thought-provoking articles regarding the options backdating phenomenon, first, significantly, brought to light by the financial press in March of 2006. Options backdating, in which organizations retrospectively and advantageously assign executive option grants to particular dates on which shares traded at relatively low prices, represents corporate America's most recent practice of financial manipulation — one that again jolted the investing public's confidence in the leadership of our large business enterprises.

How widespread is this practice? In their article "On the Use (and Abuse) of Stock Option Grants", from the May / June 2007 issue of the Financial Analysts Journal, authors Randall Heron, Erik Lie and Tod Perry note that, as of November 2006, more than 170 companies had been publicly identified as subject to investigation for alleged option-granting problems.⁸ The authors further suggest, however, in reference to a 2006 study completed by Messrs. Heron and Lie, that "almost 30 percent of companies that granted options to top executives between 1996 and 2005 manipulated one or more of their grants in some fashion."⁹

In supplying a historical context for options backdating, the authors provided an analysis of executive (CEO) compensation for the 1994-2005 period for companies comprising the S&P 1500 Composite Index. By 2005, the mean value of option grants for CEOs from this group of companies represented approximately 250% of mean salary compensation and nearly 95% of mean cash compensation (salary plus bonus).¹⁰

Performance-based compensation for key executives has grown significantly since the early 1990s in part in response to efforts by the SEC to improve transparency with respect to reporting of executive compensation as well as tax law changes which now limit deductions for non-performance-based compensation. The increased utilization of performance-based pay, particularly stock options, subsequently led to further regulatory initiatives: (a) to further improve financial reporting in the manner of SFAS 123R (stock option fair value reporting); (b) to address abuses associated with backdating (Sarbanes-Oxley provision which requires reporting of option grants within 2 business days of the transaction); and (c) the passage of a tax code provision 409a which now extends potentially significant costs to companies and employees for granting non-qualified stock options at exercise prices less than fair market value of the underlying stock at date of grant.

Options backdating appears to be another unfortunate example of the process of abuse — market recognition — regulatory response — adaptive and maladaptive behavior. An important element, however, may be absent from the usual chain in this instance — the financial markets have generally not rebuked these companies and I fear an important economic incentive may be lacking to promote more ethical behavior. Lori Pizzani within her article in the July / August 2007 issue of the CFA Institute Magazine states that "there has been no universal selling off by investment managers of corporations found to have engaged in the backdating of stock options."¹¹ Heron, Lie and Perry suggest that "the puzzling manner in which the market has reacted to the public disclosure of this information probably reflects the significant divergence in opinions regarding the egregiousness of the practice and uncertainty about the number of companies that will ultimately fall under suspicion, the cost to investigate and fix the problems, and ultimately, the vigor with which the IRS, SEC and Department of Justice will take action against the individuals and companies involved."¹²

Culture and Compliance

Certain authors and analysts have recently spoken to the notion of unchecked management hubris and the related sense of unconditional entitlement as origins of abuses such as backdating of stock options. Perhaps the underlying problem at the root of these forces, however, is the more general failure of certain organizations to develop ethical cultures. Regardless of source, the pragmatic question seems to be with what incentive are we left to develop more ethical business enterprises? If superior long term value creation is the real driver for business leaders, these leaders should at least recognize that ethical practices are indeed a catalyst for favorable economic consequences. Curtis Verschoor within the August 2007 issue of Strategic Finance, states "evidence continues to accumulate that ethical companies perform better financially than others... Companies on the Corpedia Ethics Index have outperformed the S&P 500 by more than 370% over the past five years... Firms that pay attention to ethics and employ compliance initiatives that assure that conduct harmonizes with core values build greater customer loyalty, attract and retain superior, more productive employees and achieve lower costs of capital through greater investor confidence."¹³

The U.S. Congress certainly wished to promote the development of ethical business practices in passing the Sarbanes-Oxley Act of 2002 — Section 404 of the Act, for example, requires reliability assessments and associated financial reporting regarding a company's internal controls. Sarbanes-Oxley has garnered significant exposure within the financial press, since its passage, from the perspectives of corporate governance and implementation expense among others. One estimate (AMR Research) notes that public companies spent roughly $6 billion complying with Sarbanes-Oxley in 2006.¹⁴ How do we continue to experience ethical lapses like those associated with backdating of option grants in spite of such investments? Several recent studies are suggesting that companies' risk assessment systems are simply not adequately aligned with effective ethical compliance programs. Compliance programs and risk assessments evidently should migrate more aggressively outside the internal legal department, become more integrated within mainstream business functions and seek input from a greater variety of business executives, managers and employees.

Time flies, eternity awaits.

In June of 2007, the SEC issued interpretive release No. 33-8809 — "Amendments to Rules Regarding Management's Report on Internal Control over Financial Reporting (Corrected)." The aforementioned Vershoor article notes that this interpretative release "provides guidance for management to evaluate and assess internal control over financial reporting in a more effective and inexpensive manner. Its purpose is to set forth an approach by which management can conduct a top-down, risk-based evaluation. In other words, the SEC recommends that the most cost-effective method of compliance with Section 404 is to focus mainly on significant risks and entity-level controls... The SEC pronouncement emphasizes the importance of risks and related ethics and compliance by defining entity level controls... (including those) controls related to the control environment (management philosophy, operating style, integrity and ethical values) (emphasis added)..."¹⁵ Private studies and governmental analyses, then, once again emphasize the seemingly obvious — business executives must clearly, demonstrably lead their organizations in establishing and reinforcing ethical business practices.

Lastly, with respect to legislative efforts, compliance initiatives and ethical business practices, it is noteworthy that private companies are increasingly adopting Sarbanes-Oxley-oriented initiatives. Private companies with serious intentions of accessing the public equity market understand the advantages of placing such controls in place well in advance of any initial public offering. Further, owners of private companies pursuing an eventual sale to a currently or prospectively publicly-traded strategic buyer can, via implementing strong internal control systems, put their businesses at a competitive advantage relative to other potential target companies by thus lowering the perceived operating and regulatory risks as so viewed by strategic buyers. External forces are additionally at work here — state legislatures and regulators, industry associations and insurance companies are becoming increasingly interested in applying such compliance procedures to private companies.

Burden of Proof

Steven Bravo, within an article appearing in the Winter 2006 issue of Business Valuation Review, interestingly suggests that the burden of proof, at least regarding questions of fact, in tax litigation cases can be shifted from taxpayer to the IRS if the taxpayer complies with provisions of Section 7491 of the Internal Revenue Code. Section 7491 conditions essentially include the introduction of credible evidence, compliance with tax code and regulatory substantiation requirements, maintenance of records and cooperation with requests for information. Bravo states "Credible evidence is evidence that is worthy of belief that cannot be contradicted by the government. This would include reports by experts that follow generally accepted standards, methods and procedures, and support their (taxpayers') position with relevant and objective evidence. This shifting of the burden can be critical in a case that could go either way. When the burden of proof is shifted to the government in an equally balanced case, the court will find for the taxpayer because the government has not satisfied its burden."¹⁶ The potential advantage of shifting the burden of proof was indeed underscored in the case of Herbert V. Kolher Jr., T.C. Memo 2006-152, wherein the tax court decided in the favor of a taxpayer who relied upon certified business appraisers that followed / utilized generally accepted business valuation standards, approaches, methods and procedures. Find additional information regarding the burden of proof within Title XIV Rule 142 accessible at www.ustaxcourt.gov/notice.htm.

Key Assumption in Option Valuation

Several key assumptions drive stock option valuation conclusions from commonly used models such as the Black-Scholes and Hull-White / Lattice option pricing models. Perhaps the most important yet most vexing assumption required by option pricing models is the term or effective length of the option period. Standard option valuation theory (time value of money) suggests that an option holder would defer exercise of an option until the moment immediately preceding expiration. Practical "term" assumptions for employee stock option valuations, however, must take into account the expected life of the option which depends upon such factors as delayed vesting, early exercise due to employee terminations, individual tax and wealth considerations, views regarding future returns on the underlying stock and employee forfeitures of unvested shares. The good news here is that once an accurate assessment of the option's expected life is completed, conclusions do not apparently vary significantly across those models commonly utilized to estimate option values. Manuel Ammann and Ralf Seiz conclude, within a study described in the September / October 2004 Financial Analysts Journal, that "(most) models produce virtually identical option prices if they are calibrated to the same expected life. In fact for most models that account for premature exercise of an option, expected life is a sufficient parameter to determine the price of an employee stock option relative to a standard option."¹⁷

In what I considered an interesting, related study, Institutional Shareholder Services ("ISS") completed an analysis of some of the early mandatory disclosures regarding employee stock option expense reporting under FAS 123R. ISS compared 2006 reported stock option expenses for a sample of 36 companies to stock option valuation estimates developed from a standard methodology and model that "explicitly accounts for suboptimal employee exercise patterns and option exercise and forfeitures due to pre- and post-vesting employee termination... Initial analysis of these data indicates that companies are consistently, and in some cases, significantly, understating the expense of employee stock options, even under the new accounting regulations. Eighty-nine percent (89%) of companies in our sample reported option values lower than our adjusted value."¹⁸ The primary factor underlying the value differentials in the ISS study related to expected length of the option. The ISS suggests that "it is entirely appropriate that companies adjust expected term length downward — (but) they must reflect the reality of employee stock options. Investors should pay close attention to the scale of this adjustment."¹⁹ Within the ISS study, the average company expected term for option grants was 56% of the contractual term.²⁰

Developments in Option Valuation

Paragraph 22 of FAS 123R reads, in part, that "the fair value of an equity share option or similar instrument shall be measured based on the observable market price of an option with the same or similar terms and conditions, if one is available." Rarely are such "similar" stock options traded in the public market; hence, companies rely upon option pricing models to estimate the fair value of employee option grants. Utah-based Zions Bancorp, however, interpreted FAS 123R literally with respect to developing an innovative valuation approach for employee stock options. On January 25, 2007, the company received approval from the SEC for issuance of ESOARS^TM — Employee Stock Option Appreciation Rights Securities. ESOARS^TM are securities that "track the value of a reference pool of employee stock options by making payments to holders (of the securities) as options in the reference pool are exercised. Each ESOARS^TM unit entitles the holder to receive, over the term of the options in the reference pool, the average of the net realized value, or intrinsic value, realized upon the exercise of vested options in the reference pool... The amount and timing of payments, if any, to ESOARS^TM holders is uncertain and will be affected by numerous variables including, but not limited to, underlying stock price movements, the amounts and timing of employee option exercises and employee terminations)."²¹ Determinants of tracking security holders' returns, not surprisingly, therefore, will parallel key assumptions underlying generally accepted option valuation models — namely, stock price volatility and expected life of the option. More information on this innovative approach can be obtained from www.auctions.zionsdirect.com/doc/esoars/faq#what_are_esoars.

Effective Committees

Business executives and other professionals spend significant time serving within committees and project teams. What significant performance constraints inhibit the achievement of optimal outcomes within such settings? Arnold Wood of Martingale Asset Management suggests that individuals' tendencies to over rely upon rules of thumb and mental shortcuts are amplified by committee dynamics. Among these tendencies are anchoring and extrapolation (past portends the future), misconceptions of randomness (seeing "patterns" that may not exist) and representativeness (small sample sizes may not lead to legitimate conclusions).

With respect to misconceptions of randomness, Mr. Wood notes that "humans... instinctively seek and prefer patterns whether in information, daily activity or the behavior of other humans."²² Regarding anchoring and extrapolation, Wood suggests that humans frequently attribute too much significance to "single traits or pieces of data" and that this outcome is "often the least objectionable route" within committee contexts. Least objectionable routes may emerge from groups where (a) "member selection more often than not is determined by commonalities" and (b) the fact that "members are constantly weighing such cognition issues as how should I process information or develop personal insights versus social psychology, which focuses on how do I behave in the presence of others and how do I justify my statements."²³ Wood additionally states that "committees notoriously do not learn from experience and committees rarely keep track of decisions well enough or long enough to identify systematic biases that creep into deliberations."²⁴

The individual psychological and group dynamic hurdles, fortunately, may be overcome through helpful practices of an effective committee chair or project leader. In Wood's opinion, such practices include the selection of a heterogeneous group, a clear focus upon important consequences, assignment of specific tasks to committee members to avoid "social loafing", encouraging brainstorming outside of committee meetings, diplomacy to elicit insights (versus insults), and intermittent pacification and persuasion of group members.

Here's hoping your committee meetings utilize high quality processes and achieve your intended results!

Venture Financing

Andrew Metrick's 2007 Wiley and Sons publication, Venture Capital and the Finance of Innovation, presents great background on the venture capital sector as well as the art and science of making and valuing venture investments. Some interesting observations from the book appear within the following paragraphs.

We know that a good deal of time is spent and analysis conducted, during a venture firm's due diligence process, regarding exit strategies, probabilities and prospective valuations. Metrick's chapter on "The Historical Evidence" suggests that, assuming a ten year post-investment measurement period, 40% of venture funds' first round investments were made in subsequently defunct companies. Another 40% of VC's first round portfolio companies were acquired, with an apparently conservatively estimated 38% of those acquisition transactions returning less than original invested capital to the venture investors. The remaining 20% of companies achieved an initial public offering.²⁵ (Note that Adam Lichtenstein, within an article published in the November / December 2006 edition of the Financial Analysts Journal, indicates that 26,000 venture-stage companies were funded by U.S. venture capital funds during the 1980-2005 time frame — 13% of these companies completed an IPO during that period.²⁶)

Second and third round investments, expectedly, face improved exit prospects although the differences over a 10 year measurement period are not necessarily as dramatic as one may suspect. Second and third round investments on average continue to experience an acquisition-oriented exit in 40% of the cases and enjoy an IPO 30% of the time. Regardless, this financial outcome experience partially helps explain the material differences between a venture firm's (seemingly significant) targeted rates of return and its cost of capital.²⁷

Venture capitalists "can and do have significant input into the corporate governance process... VC-backed companies are less likely to engage in aggressive accounting prior to an IPO, more likely to have independent boards and board subcommittees and more likely to separate the role of chairman and CEO."²⁸

"The most comprehensive data on the angel market is maintained by the Center for Venture Research at the University of New Hampshire."²⁹

The average first-time venture financing for the second quarter of 2007 was $5.2 million according to the National Venture Capital Association / Price-Waterhouse publication MoneyTree Report.³⁰ The 2007 second quarter venture investing summary for the Midwest region is available at www.pwcmoneytree.com/MTPublic/ns/print.jsp?page=region®ion=1600&industry.

Entrepreneurial Wealth Concentration

A common trait among many successful entrepreneurs is the lack of understanding of (or perhaps the refusal to simply accept) the law of probability. Entrepreneurs overcome significant challenges in building valuable businesses thanks to a combination of perceptiveness, skill, perseverance and, no doubt, some luck. Successful owners of private companies are necessarily highly focused and fully invested in their businesses. Their professional passion, sweat and financial capital are usually concentrated upon their businesses. In creating wealth through their endeavors, entrepreneurs naturally develop an altered view of risk — these business professionals, after all, have overcome the odds and achieved (controlled) an important outcome — building a successful enterprise.

One seemingly unavoidable result of the entrepreneur's focused efforts, however, is the concentration of wealth (or lack of diversification). In my experience of working with many successful entrepreneurs, I have been surprised by these professionals' lack of formal recognition, consideration and assessment of this investment risk. I believe if successful entrepreneurs took more of an integrated portfolio view toward ownership of their private companies, they would more readily consider strategies to protect these highly valuable investments and form achievable ownership transition plans that ultimately help diversify their wealth.

Optimal life cycle investing strategies emphasize the use of model portfolios and strategic asset allocations that evolve over the lifetime of the investor. The entrepreneur's principal pre-exit asset, however, in effect consists of a relatively ill-liquid, high return, high risk, small-capitalization equity. This economic reality does not, however, prevent the owner from determining his present asset allocation inclusive of this holding. By valuing his or her private company equity interest(s) within the context of the entire investment portfolio, the owner can better address such questions as:

How should I allocate investment assets (or what types of securities should I own) beyond my private company investment?
What strategies might I use to help protect the value of my private company investment?
Should I consider any liquidity / diversification strategies in the near term?
What is my anticipated long term ownership transition plan and how / when will the successful execution of that plan meet my future investment portfolio objectives?

The building of a successful business provides substantial personal, professional and economic rewards for an owner. Entrepreneurs can inform their investment decision making and business planning by periodically conducting portfolio assessments which include valuations of their private companies.

Footnotes

¹ Alan Greenspan, The Age of Turbulence: Adventures in a New World, (New York: The Penguin Press, 2007), 412.

² Jagadeesh Gokhale and Kent Smetters, "Do the Markets Care about the $2.4 Trillion U.S. Deficit?", Financial Analysts Journal, Volume 63, Issue 2 (March/April 2007), 37.

³ Ibid, 45.

⁴ Jerry H. Tempelman, "Do the Markets Care about the $2.4 Trillion U.S. Deficit?: Comments", Financial Analysts Journal, Volume 63, Issue 4 (July/August 2007), 11.

⁵ Ibid.

⁶ Jagadeesh Gokhale and Kent Smetters, "Do the Markets Care about the $2.4 Trillion U.S. Deficit?", Financial Analysts Journal, Volume 63, Issue 2 (March/April 2007), 45-46.

⁷ Alan Greenspan, The Age of Turbulence: Adventures in a New World, (New York: The Penguin Press, 2007), 417-418.

⁸ Randall A. Heron, Erik Lie and Tod Perry, "On the Use (and Abuse) of Stock Option Grants", Financial Analysts Journal, Volume 63, Issue 3 (May/June 2007), 23.

⁹ Ibid, 22.

¹⁰ Ibid, 19.

¹¹ Lori Pizzani, "Fallout? What Fallout? The Backlash from the Stock Options Backdating Scandal Is Almost Non-existent", CFA Magazine, (July/August 2007), 62.

¹² Randall A. Heron, Erik Lie and Tod Perry, "On the Use (and Abuse) of Stock Option Grants", Financial Analysts Journal, Volume 63, Issue 3 (May/June 2007), 23-24.

¹³ Curtis Verschoor, "Ethical Culture More Important Than Ever", Strategic Finance, (August 2007), 11.

¹⁴ Marianne Bradford and Joe Brazel, Flirting with Sox 404: Are Private Companies Interested in a Relationship", Strategic Finance, (September 2007), 48.

¹⁵ Curtis Verschoor, "Ethical Culture More Important Than Ever", Strategic Finance, (August 2007), 11-12.

¹⁶ Stephen J. Bravo, "The Burden of Proof", Business Valuation Review, (Winter 2006), 136-137.

¹⁷ Manuel Ammann and Ralf Seiz, "Valuing Employee Stock Options: Does the Model Matter", Financial Analysts Journal, Volume 60, Issue 5 (September / October 2004), 32.

¹⁸ Institutional Shareholder Services, "Employee Stock Option Expense: Reporting Trends under FAS 123R", (February 6, 2007), 3.

¹⁹ Ibid, 4.

²⁰ Ibid.

²¹ "ESOARS - FAQs", accessed October 12, 2007 from www.auctions.zionsdirect.com/doc/esoars/faq#what_are_esoars.

²² Arnold S. Wood, "Behavioral Finance and Investment Committee Decision Making", CFA Institute Conference Proceedings Quarterly, Volume 23, Issue 4 (December 2006), 31.

²³ Ibid, 33.

²⁴ Ibid, 32.

²⁵ Andrew Metrick, Venture Capital and the Finance of Innovation, (Hoboken, NJ: John Wiley and Sons, 2007), 125-132.

²⁶ Adam Lichtenstein,, "Home-State Investment Bias in Venture Capital Funds", Financial Analysts Journal, Volume 62, Issue 6 (November / December 2006), 22.

²⁷ Andrew Metrick, Venture Capital and the Finance of Innovation, (Hoboken, NJ: John Wiley and Sons, 2007), 125-132.

²⁸ Ibid, 95.

²⁹ Ibid, 4.

³⁰ "MoneyTree Report". Accessed October 16, 2007 from www.pwcmoneytree.com/MTPublic/ns/index.jsp.

Bibliography

Ammann, Manuel and Seiz, Ralf. "Valuing Employee Stock Options: Does the Model Matter", Financial Analysts Journal, Volume 60, Issue 5 (September / October 2004), 21-37.

Bradford, Marianne and Brazel, Joe. "Flirting with Sox 404: Are Private Companies Interested in a Relationship?", Strategic Finance, (September 2007), 48-53.

Bravo, Steve. "The Burden of Proof", Business Valuation Review, (Winter 2006), 136-137.

"ESOARS - FAQs". Accessed October 12, 2007. Available from www.auctions.zionsdirect.com/doc/esoars/faq#what_are_esoars.

Gokhale, Jagadeesh and Smetters, Kent. "Do the Markets Care about the $2.4 Trillion U.S. Deficit?" Financial Analysts Journal. Volume 63, Issue 2, (March/April 2007), 37-47.

Greenspan, Alan. The Age of Turbulence: Adventures in a New World. New York: The Penguin Press, 2007.

Heron, Randall A., Lie, Erik and Perry, Tod. "On the Use (and Abuse) of Stock Option Grants" Financial Analysts Journal. Volume 63, Issue 3, (May/June 2007), 17-27.

Institutional Shareholder Services. "Employee Stock Option Expense: Reporting Trends under FAS 123R", (February 6, 2007),1-5.

Lichtenstein , Adam. "Home-State Investment Bias in Venture Capital Funds", Financial Analysts Journal, Volume 62, Issue 6 (November / December 2006), 22-26.

Metrick, Andrew. Venture Capital and the Finance of Innovation. Hoboken: John Wiley and Sons, 2007.

"MoneyTree Report". Accessed October 16, 2007. Available from www.pwcmoneytree.com/MTPublic/ns/index.jsp.

Pizzani, Lori. "Fallout? What Fallout? The Backlash from the Stock Options Backdating Scandal Is Almost Non-existent", CFA Magazine, (July/August 2007), 62-63.

Tempelman, Jerry H. "Do the Markets Care about the $2.4 Trillion U.S. Deficit?: Comments" Financial Analysts Journal. Volume 63, Issue 4, (July/August 2007), 11.

Verschoor, Curtis, C. "Ethical Culture More Important Than Ever", Strategic Finance, (August 2007), 11-12, 21.

Wood, Arnold S. "Behavioral Finance and Investment Committee Decision Making", CFA Institute Conference Proceedings Quarterly, Volume 23, Issue 4 (December 2006), 29-37.