Redstate

Well, I guess if you want to see what someone like Steve Jobs is worth to Apple Computer, for example, watch what happens to the value of the company tomorrow, if he resigns today.

The problem is at most of those companies, the board of directors is in on the gag. Highly compensated board (staffed with representatives of institutional investors such as pension funds who treat the position as a perk) OKs highly compensated upper management who does not make a point to the stockholders about highly overpaid board.

A respected investment group needs to develop a formula for determining how much corporate profit is soaked up by upper management and the board. rate as a separate factor towards stock value like any other fundamental. No government, just market forces, but the market forces have got to be able to get the data.

The only areas needing government involvement are

1. no "poison pills". They are a means for the management and/or the board to steal or divert stockholder value into their own pockets.
   
   
2. no "golden parachutes" except as itemized in the prospectus and at the time of an IPO. At no other time, and for no other reason. Buyers of the new release can evaluate what it costs them and choose to buy (and fund the parachute) or not at that time.
   
   
3. full disclosure of executive (and board member's) compensation, and compensation detailed and totalled at stockholders meeting just before particular positions are voted on.
   
   
4. pensions accrue in realtime for all people for whom overtime is not mandatory. (crap about Fortune 500 exec being vested for 25 years in 6 months has got to go)
   
   
5. "off balance accounting" (see Enron) is disallowed or deceptive results are actionable by stockholders against perpetrators.

At most public companies, a small portion of investors own enough stock to effectively control the company irrespective os what happens at the stockholder's meetings. Due to naieve stockholders  and inertia, (see HP votes)this does not have to be a majority, but those a part of this group (or representing a firm owning those shares) are those who make up the highly compensated board.

Is directly accountable to the shareholders. A company will trade at a discount if the board is perceived as weak or in the bag for management. Sure, some people are still going to invest, but some people will invest in anything, even majority state owned enterprises in dictatorships. It is all factored into the price.

Everything outside of outright fraud should be left up to the shareholders to deal with. They are the ones that make the final call.

For what it's worth, I just wrote a 30 page paper on executive compensation for a law school class.  After doing a considerable amount of reading on the subject, I have come to the conclusion that it's the fault of Congress.  

Briefly, in 1994 Congress capped executive compensation deductions a $1 million for the stated purpose of curbing the growth of executive compensation.

The exception to the million dollar cap was "performance" based compensation, which includes options.  The net result was a sharp increase in executive compensation growth, almost entirely due to options.  All brought about because Congress wasn't satisfied with the "reasonable salary" requirement already in existence.

There are other reasons for the growth of exec compensation as well, but congressional meddling is at the top of the list.

But with Congress, every time they make a joke its a law. And every time they make a law its a joke.

Will Rogers

1.  What do poison pills have to do with executive compensation?  They're designed to protect the board, not the execs.  And they're only relevant to takeovers, aren't they?
   
2.  I think full disclosure is required by both the new FASB Statement 123, SOX, and Section 162(m) of the Code.
   
3.  The off-balance sheet accounting, the way Enron did it, was already illegal (thus people on trial).  And SOX, at least to some degree, strengthened the SEC's ability to prosecute such chicanery.
   
4.  Golden parachutes really don't play a major role in executive compensation, I believe.  It's rare, and big when it happens, but generally irrelevant.
   
5. Dunno about the pension stuff, but it doesn't strike me as all that negative on corporate value.

Of course government is to blame.

But how about this idea.

Taxing executive salaries at 100%.  You want a million dollars? It costs your company 2 million.

Of course it's just begging for loopholes... so I wouldn't advocate it.

...do you actually know what you're talking about? Have you ever sat on a board, an audit committee or a comp committee? Have you ever hired (or tried to hire) a CEO?

I'd be curious to hear your specific backup for each of your points. Meantime, I'll note that the last time the government got involved in corporate governance, it was to respond to the Arthur Andersen problem. (I personally know some of the good people near the top of that firm, and they're still rightly bitter. Andersen did make stupid mistakes but the firm and all its partners didn't deserve the death penalty.) So what was the government's response? The Sarbanes-Oxley Act. This has been such a complete disaster that both Hillary Clinton and Elliott Spitzer will be making political hay over proposals to scale it back.

...who those investment firms that "control" the public companies actually work for? They work for you. They're the people who manage your pension fund, your insurance company's portfolion, and the endowment of the university where you send your kids. And this is a better system than in any other country, where corporate managements are generally beholden not to shareholders but to government officials.

American business does indeed face some very significant (and underreported) issues in regard to governance, but CEO comp is only the tip of the iceberg.

By the way, go read the list of board members of any public company. You won't find a lot of Carlisle Group type guys. You'll find mostly CEOs and retired CEOs from companies of similar size, plus a smattering of ex-politicians, public-sector types and business school professors chosen for their expertise but also for their gender and skin color. Some boards are inbred and dominated by management, but most are not, and this situation is getting better and better. At the same time, Sarbox together with proposals like yours are making it harder and harder to find qualified people who are willing to serve on boards.

a double dose of: but the biggest problem with corporate governance is the micromanagement of executive decisions by stockholder groups, most notably enforced by class action law suits.

That's hyperbole, but still.

Why not just have a maximum wage of, say, $10/hour?  That way there is room for people at the bottom, earning the minimum wage, to grow into more lucrative positions.  

It's Capitalism, after all.

There is a tax surcharge on incomes over a million dollars already. And don't forget the AMT. That's partly why so much exec comp is not in cash but in things like option grants, deferred comp, and contingent comp.

You're proposing a 50% marginal income tax rate on high incomes. Include state and local taxes and we're already well above that at income levels quite a bit below $1 million. (My non-AMT marginal rate this year will be around 54%.)

...in 2005 was $1. That's what it's been for many of the years he's been with the company. It's been a while since I checked Gates' salary at Microsoft but it used to be something like $200,000.

"Reader, suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself."  -- Mark Twain

By "income tax surcharge" on incomes over a million dollars, I meant what bluechiplaw points out is actually an exclusion on deducting salaries over $1 million. Thanks for the clarification. This is actually worse than a surcharge for the CEO because it means the company has to pay for any executive salary above $1 million out of the company's after-tax profits. It behaves exactly like a dividend, which I'm sure was Congress' intent. And of course like all dividends, it's taxed twice because the recipient pays a full income tax plus AMT load on it. So the effect is (using rough numbers) that the company has to earn $4 to give the exec $1, with the other $3 going to the government.

So given that the market price for a top exec is now well over $1 million, you can see why people have to find other ways to get them up to that level. The discounted net present value of things like deferred comp and options is usually (but not always) far less than what the MSM headlines would have you believe.

It's a good thing athletes aren't classed as executives. Wouldn't it be weird if a top shortstop who made $10 million in a year had to pay double taxes on 9 million of it?

When a company hires an outside contractorr to determine upper management's salary based off results, don't inform the contractor which company is hiring him.  Instead give him a list of 5 companies or so, and say your company is on the list.  This way you can get an accurate portrayl on what you should pay the management and what you should pay as bonuses.  Without this blind wall of divider the contractor is more likely to "inflate the recommend bonus" to make other people feel good, and get the job again next year.  Of course for legal reasons you need to first approach the other 4 companies, but if they are going to be doing a similar thing with other firms it would be quite easy.

Its a simple answer, self regulation caused by the free markets, no goverment involvement trying to determine social justice, and you can sell it easily to the stockholders.

I don't want the government involved. However, This is a trap that conservatives routinely fall into. Since we don't want government interference we make up excuses to try to say "There is no problem".

  The perception, by an increasing number of people however is that there IS a problem with the way many US corporations are run. The incestuous nature of so many boards of directors is IMO one of the roots of the problem. The other root is focus on short term profits.

  If there is no sort  of voluntary clean up of the corporate sector, we might see some regulation in the future, and that would be disastrous.

On all points.  

Yet:

1.  Leaving aside from SOx, which is a terrible (and terribly costly) law, I do think that it's goot to require companies to report deferred and contingent compensation for their executives.  The famous examples of low executive salaries cited above (e.g., Steve Job's salary of $1) tells you nothing about his actual compensation.
   
2.  As for the power of the individual investor to affect change:  it's bizarrely overstated by this post and the comments that follow it.  (When is the last time your mutual fund advisor listened to your suggestions for COO?)  Yet, I'd argue that this is generally a good thing.  Most of us have not the time, skill, or (frankly) ability to make good decisions regarding executive retention and compensation.  Indeed, IMHO, most of the "little guy investors" who show up at meeting are better known by their Latin term:  "crankus interruptus."
   

You can't regulate morality.  It's unrealistic to believe that the SEC (or SOX legislation) can proactively inhibit CEO's intent on cooking the books.  The market will do a reasonably good job over the long haul - if we let it. (Disclaimer I'm a 'short seller' on occasion).

Although there are CEOs of public companies who have compensation that is out of sync with their performance - at least the stock price reflects the public's overall support (or lack of support).  There is just as much, or more, excessive compensation in the public and non-profit sectors that goes under-the-radar in most cases.  The fraud at Fannie Mae was ten times Enron but has  attracted minimal attention and no one is calling for the CEO to go to jail.  Why?

It's not uncommon, at least in NYC, to sit on multiple non-profit boards - weaving intricate resource allocation webs that directly benefit board members to the tune of serious six and seven figure annual compensation.

I can't think of a regulatory approach to this problem that would be effective but having been through more a one example of corporate malfeasance I do think that it is a problem.  In the case of my company the executives all embraced, the now illegal, forgivable loans.  Managed to take a 200 million company and get it chopped up by the NASD.  Pretty sad.  But they all made a nice penny.

I was responding to a post that made statements about governance that struck me as coming from someone who hasn't seen the inside of many boardrooms, and I was challenging him for backup and clarification. To your points:

There's a lot of controversy about reporting deferred compensation, not just to top execs, because (among other reasons) there's no agreement on how their impact on earnings should be reported. It's one thing to report them fully (which companies should do) but another thing when you end up comparing apples and oranges.

I told the story upthread about Job's salary. He (and Gates and Michael Dell) are exceptional cases. They are rich men because they founded their respective companies. With success, they became rich along with their other shareholders, so it's not clear to me that the term compensation should be applied in those cases. In any event, you would do anything to get a CEO with even one-tenth of the capability these guys have. They are extraordinary men. An example of a guy who was not a founder but is worth every penny of his exorbitant comp package is John Chambers of Cisco.

The real issue with executive comp, as someone else obliquely said, is that with many (maybe even most) CEOs, shareholders just ain't getting what they pay for. Many factors go into whether a company succeeds or fails, but leadership quality is definitely one of them, and for every John Chambers there are a few dozen Rick Waggoners walking around. Rick is a fine fellow and a hard worker of course but I think you can seriously question what he has done for his company. And shareholders do. That doesn't make this a matter of public morality as the Left would have you believe. It's more like spending $10 million for a pitcher who ends up not really helping your team.

Shareholder power: I'm constantly amazed by how people understand their role. Perhaps it comes from watching shareholder meetings in the movies. A corporation is not necessarily a democracy, and every one has specific rules in their bylaws about the power of shareholders. You can't go public if your rules don't give shareholders a normal amount of power, but that's because you won't be able to get investors to bite off on your IPO in the first place if your bylaws aren't clean. A lawyer once explained to me early in my career that even a 5% shareholder will get a very receptive hearing from a judge in a lawsuit (I will admit without giving details that I was trying to clip the wings of a particular dissident at the time). But the old lady with 10,000 shares of ExxonMobil is an infinitesimal speck of the company.

What is really happening in American business is that a rather small number (perhaps 10,000) of institutional investors have a very great deal of sway over the share prices of public companies. They are people that managements must satisfy, and they demand satisfaction on a quarterly basis. The whole band of LBO artists in the Eighties really started this phenomenon, and it had the salutary effect of rationalizing a huge amount of underperforming assets. Now many people are starting to whisper that things have gone too far, as near-term financial performance is not necessarily the metric that a great enterprise should be entirely focused on. You will hear (and it's true) that Sarbanes-Oxley is inducing many public companies to start thinking about being private again, but those whispers have been in the breeze for much longer than the last four years now.

Yea, you coming the company meeting with your 100 shares and being disruptive that is not going to accomplish anything. Sending in moronic shareholder resolutions isn't going to either (there are people who own shares of certain companies just so they have the right to do this).

If you are unsatisfied with management, sell the dang investment. That is the bottom line.

I'm too old, have lived too long -- long enough to remember that about 20 years ago the AFL-CIO, among others, were on a big jihad over this. They were angry that CEO's were making a lot of money when their companies weren't doing well. Thus was born the pay for performance idea (among CEO's, not among union members), tying their pay to the performance of the company as measured by stock price. So when companies do well, they make more. Now unions come to gripe that CEO's are making too much.

However, the real outrage is trial lawyer salaries -- the richest trial lawyer dwarfs the top CEO, always has. And, these are people who don't create jobs, they kill jobs and put no value back in the hole they leave in the economy.

I don't read his gripes as being about executive compensation per se. Rather, its a synecdote of a general decadence in American corporate culture.

However, the real outrage is trial lawyer salaries -- the richest trial lawyer dwarfs the top CEO, always has. And, these are people who don't create jobs, they kill jobs and put no value back in the hole they leave in the economy.

It's time to drop the ideology and look at the real world.  My father-in-law (retired) was an executive vice-president at the Hearst Corporation and was publishser of several large city newspapers.  He sat on many boards which determined CEO compensation.  Likewise his friends sat on the board that determined his compensation.  As you can see, it is an insider's game with very few checks.  This is why a CEO's pay increases even when his company's performance is dismal, and why we see so many golden parachutes.  This also explains why CEO salaries, which were 40 times the average worker back in the 80's are now closer to 400 times.  (You may argue with these specific numbers, but it is impossible to argue that CEO compensation has not grown much faster than that of the average worker.)  

Complaining about other people's compensation is just another face of Greed.

Don't like how a company is run?  Don't buy their products.  Don't buy their stock -- or do buy it and raise a stink with the other shareholders.

It's time to drop the ideology and look at the real world.

Marxism is not an ideology? It is also about as far removed from the real world as you can get.

However, the real outrage is trial lawyer salaries -- the richest trial lawyer dwarfs the top CEO, always has.

Bill Gates is a trial lawyer?  Michael Dell is a trial lawyer?  Scott McNealy is a trial lawyer?

Never that.  Actually looking at Forbes list of Top 100 wealthiest Americans I don't see a single lawyer in the top 100(could be Top 400 but I stopped looking).  How could that be?  Oddly enough I see a whole heck of a lot of CEOs on that list.

are too smart to let their incomes be reported? :-)

My complaint is the allocation of money.  It could be better used to improve a company's products and pay better salaries to the workers that are actually producing the products.  Study history to see the results of huge disparities in income within a society.  Capitalism is the best system there is, but it doesn't work without oversight when insiders rig the system.

Which means, of course, that you're wrong :-).

Because it's not your call.  Saying that there has to be "oversight" is symptomatic of socialist thinking, and yes, I'm lazily using that as a pointy stick.

Are you saying that oversight equals socialism?  That's a bit of a stretch!  Unchecked anything is not good.  It is possible to over-control a system.  However unchecked capitalism is not a good thing either (unless we had a perfect world where everyone played fair).  What do you call the oversight between the 3 branches of our government?  You may disagree with me, but you are the one on the extreme end.

Do I have to be a party member to apply for the position of Commissar for Deciding What Is and What Is Not Fair?

Control, no.  It's impossible for government to set a maximum wage, to legislate a compensation scale, or to monkey with the pay of executives and have it work.  It's like the minimum wage, only more stupid as no one will in the end obey any such control.

Keep companies from doing what individuals can't do, such as dumping toxic waste or killing.  That's all the oversight required; let the market do the rest.

The Security Exchange Commission is a Socialist organization?  Who knew?  

Do you think that companies should be required to follow common accounting principles?  Do you think that they should be allowed to give CEOs whatever they want?  Cause if you do there are a bunch of laws already on the books that prohibit that.

I'm not sure how you took my statement that I agree with your post to be a statement that I disagreed with your post.  

As for your responses to my points:

It's one thing to report them fully (which companies should do) but another thing when you end up comparing apples and oranges.

The extent that I was unclear:  Agree with disclosure; disagree with any requirement to attempt to report their impact on earnings (although, in some cases, individual companies may find it prudent to do so).

I told the story upthread about Job's salary. He (and Gates and Michael Dell) are exceptional cases. They are rich men because they founded their respective companies.

I thought it self-evident, but I referenced Jobs not to argue that he received unfair compensation but rather to point out that merely identifying someone's salary says nothing about his total compensation package.  

The real issue with executive comp, as someone else obliquely said, is that with many (maybe even most) CEOs, shareholders just ain't getting what they pay for.

Now I'm confused because I'm not sure what you mean about shareholders "just ain't getting what they pay for."  The marketplace sets CEO wages, no?  Shareholders are free at any time to find the cheaper, better CEO, no?  

My concern is with the potential for misrepresentation in CEO compensation -- in which the Board represents that they have the cheaper, better CEO when, in fact, they don't.

That doesn't make this a matter of public morality as the Left would have you believe. It's more like spending $10 million for a pitcher who ends up not really helping your team.

Agreed.  

Shareholder power: I'm constantly amazed by how people understand their role. Perhaps it comes from watching shareholder meetings in the movies. A corporation is not necessarily a democracy, and every one has specific rules in their bylaws about the power of shareholders.

Yes, and most executives owe fiduciary duties to their corporation and shareholders, which also significantly limits their abilities.  My point was merely the practical one:  the biggest players pick the team; a 5% shareholder is very unlikely to pick the slate of candidates.

What is really happening in American business is that a rather small number (perhaps 10,000) of institutional investors have a very great deal of sway over the share prices of public companies.

Agreed.

They are people that managements must satisfy, and they demand satisfaction on a quarterly basis. The whole band of LBO artists in the Eighties really started this phenomenon, and it had the salutary effect of rationalizing a huge amount of underperforming assets. Now many people are starting to whisper that things have gone too far, as near-term financial performance is not necessarily the metric that a great enterprise should be entirely focused on. You will hear (and it's true) that Sarbanes-Oxley is inducing many public companies to start thinking about being private again, but those whispers have been in the breeze for much longer than the last four years now.

Sounds plausible, though I'm not as close to those breezes as you probably are.

disagree with any requirement to attempt to report their impact on earnings...

This is a pretty sticky wicket and the pros are in genuine disagreement over what's being measured. I happen to think that deferred comp should be reported fully, and in the case of option grants that is now a FASB rule.

The marketplace sets CEO wages, no?  Shareholders are free at any time to find the cheaper, better CEO, no?

I made an analogy upthread about CEOs and baseball pitchers. It really is apt. The marketplace does indeed set the price for top executive talent due to scarcity. Just as there aren't too many guys who can throw a ball 93 mph for six innings, there aren't a lot of guys who can manage the conflicting and competing consituencies in a public company. And both jobs are full of extreme pressure. Some guys thrive on that, some don't. Generally speaking, you don't want the latter type. But at the end of the day, you're paying for performance. In baseball that's easy enough to define. That fireballing pitcher may fade in the stretch and olny end up winning 10 games for you. Good, but disappointing. In a CEO, it really isn't that easy to define the success metrics (unless you're a CFO or an institutional investor looking purely at marcap). It happens every day of the week that top-dollar CEOs don't live up to their expectations. It's simplistic to say that you'll get more of what you need in a CEO if you're willing to pay for it.

Yes, and most executives owe fiduciary duties to their corporation and shareholders, which also significantly limits their abilities.  My point was merely the practical one:  the biggest players pick the team; a 5% shareholder is very unlikely to pick the slate of candidates.

All corporate officers and directors have a fiduciary responsibility to their shareholders. There is no ambiguity about this, it's well-codified in the law. Does it limit their abilities? No. Does it limit their options? Yes, they are limited to pursuing only courses of action that will redound to the benefit of shareholders. That's a good thing. Also, many people these days speak of "stakeholders" in addition to shareholders. Although there is no specific legally-binding fiduciary duty by corporate managers to employees, customers, society at large, and the environment, most senior managers today take very seriously their duties to these groups, and they make decisions in full view of these responsibilities. Independent boards are now the norm rather than the exception in public companies, and they have helped drive this sensitivity to stakeholders.

About 5% holders: you need to pay closer attention to the news! The instant anyone owns 5% of a public company, they are required to make an SEC filing to disclose the fact. (Another set of required filings and additional legal requirements kick in when you own 10%.) Some very high profile changes of corporate structure have taken place in the last few months, and they were forced by 5% shareholders. I know some of them personally so I won't say more than that, except that the companies involved are household names.

Being private as opposed to public: I'm right in the middle of those "breezes," and I believe that some major changes in the way American businesses are funded are happening now, just under the radar.

doesn't make it right.  History is replete with laws we now find unconscionable.  

Common accounting principles are one thing; allowing people to sue based on stock valuation is another.  

Tinkering with wages, either on the top or the bottom, is an ostensibly well-intentioned exercise in hubris guided by indefensible envy.

They must be cheating, or they couldn't make that much, right?  We had better outlaw such clearly destructive examples of success, or more people, fools that they are, might aspire to achieve it.

Scott Sullivan, Bernie Ebbers, Ken Lay, Gary Winnick, Joe Nacchio.

Or we can talk about Rob McCormack who thought he could expense a $213,000 tab at Scores that he accrued over ONE NIGHT!

These people WERE cheating.  And not for a small chunk of change.  They ruined THOUSANDS of people's lives with their greed.

I'm not suggesting that we should cap salaries at all.  But let's not pretend that there isn't a problem and that this problem is minor.  

Many CEOs treat their publicly-traded corporations as their own fiefdoms.  They number of extremely expensive, but undocumented, "perks" these guys get is laughable.  Limo service wherever they go.  Vacation trips veiled in "business" paid for by the corporation.  Private jet service at their beck and call.  

Now I don't have a problem that they get ANY of that.  But I do think that it would good to know, as an investor, what exactly senior management is receiving in TOTAL compensation.  

Knowledge is power.  The problem is that it is against the interest of senior managers to provide that sort of information so they don't and they WON'T unless obligated to do so.

Sunlight is the best disnfectant.

Now I don't have a problem that they get ANY of that.  

Then we are in agreement.  Thank you for your time.

How does that change whether there should be oversight or not?

Public corporations that pay execs performance based stock options are required to have compensation committees composed solely of independent directors.  So, they're not technically insiders in the classic sense.

Generally, though, the directors are execs in other companies, so they're pretty sympathetic when it's time to negotiate compensation.

The oversight, then, is the market itself. We know what these guys make, and you can go to forbes' website and see what percentage of exec compensation was options/salary/etc.  So, what's the need for more regulation?  It's the information's availability that's imortant.

[people I don't know] Ken Lay [more people]... These people WERE cheating.  And not for a small chunk of change.  They ruined THOUSANDS of people's lives with their greed.

1. Ken Lay hasn't been convicted. The seriousness of the charges against him notwithstanding, justice demands patient equanimity.
   
   
2. For every crook who bilks an investor out of a dollar, there is an investor thinking he's going to get rich by wishing it so.  In other words, if THOUSANDS of people had their lives ruined, then THOUSANDS of people were greedy, too.  

Should you be able to lie to people and get rich from it?  Probably not as a general principle.  The trouble is in assuming that wealth is prima facie evidence of having have done so.  That's what the Ken Lay trial is about: he got rich, left Enron, and it fell apart; now we get to see whether the scam was his or if he escaped it by chance.

Whether Ken Lay is found guilty or not does not absolve him of his culpability from a moral standpoint.  I find it exceedingly unlikely that Lay didn't know about the illegal activities of the firm he was in charge of.  Ebbers tried that argument as well.  Didn't work out too well for him.

...I said "what he's worth to the company." So salary only wasn't my point. If Jobs asked for $20-million per year from now on, do you think they'd give it to him?

What I don't get is ... Aren't there highly qualified people in India, Brazil, and China who could run these companies? If you have a board whose total compensation is in say the tens if not hundreds of millions of dollars, why don't they outsource it for a fraction of the cost? Shouldn't these companies think globally when it comes to their jobs too?

And, for more on that topic, see this link: http://blog.nam.org/archives/2006/04/sarbanes_oxley.php

Is look at their hauls from some cases, like tobacco and asbestos. Downright obscene. And they add no value. Gates, Jobs, McNealy create jobs, create wealth for lots of people besides themselves. What we're talking about is CEO SALARIES. I'm saying top trial lawyers' earnings in any given year dwarf every CEO's pay in any given year.

What was the movie, Wall St-I think, where the evil mentor was expounding on the need for greed to his protege? Wrong. Greed is a destructive force (sin) that has permeated much of corporate America's thinking. We're watching the tragedy unfold now in a Houston court. Corporate managers have become pilaging pirates instead of stewards of the stock holders company. These are products of the entitlement generation believing that its their right to retire at age 50 w/millions in the bank. Even if their company is stagnate or failing! And they will do what it takes to achieve their goal. They'll hire half the employees they really need. They'll refrain from buying sorely needed equipment just to  make their quarterly bonus. Lie/cheat/Steal. Sink low. Read Fastow's testimony.  But, as a good conservative, I don't want to see this regulated -directly. There are ways to regulate it indirectly. Already in place. The President has a way to tweek and adjust if he chose to,as I see it.  Ok. I'm president. First thing I'm going to do to curb corporate corruption is to beef up the Dept of Labor. Yes in a Republican administration. Right now the DOL has cobwebs on the walls and an out-to-lunch sign on the door. I'm going to direct my DOL head to start strictly enforcing the Fair Labor Standards Act. Start auditing. Do surprise raids w/gun & badge toting goons. Etc. What does this do? It forces companies to cut some of their "bonus compensation"(plunder/booty) and pay overtime, hire new employees. Do right by their lower level employees. This will generate tax revenue just like a tax cut would (more taxable wages). Or similar. Another positive for the Repub's is it should  increase "jobs" numbers.  Third it takes another issue away from the Dems and brings in more labor votes and support. Yes they'll continue to carry "Support Dem's" signs at their union hall but in the privacy of the voting booth they'll pull straight Repub ticket as they know what side of their bread the butter is on. Downside might be less corporate contributors towards your next campaign but probably not. Also, some may pick up and move to India. Let 'em go. They'll find the grass isn't so green there.  But overall this strategy is a logical/positive direction for a conservative President to take.  My opinion.  

If you'll remember, the airline in Wall Street was saved by a Greedy White Knight.  And Ken Lay wasn't a product of the entitlement generation, he was a hardworking guy, and did a lot for Enron for a long time.  It was only later in his tenure that things got shadey.

"Start auditing"?  I'm pretty sure audits are already required bro.

And nothing you said to do will promote hiring or limit bonuses, which you wrongly describe as "plunder."  Is that what you really think?  Aren't boards of directors free to contract with prospective CEO's, thereby setting whatever means of compensation they get?  It ain't plunder, it's the realization of meeting performance goals. (though many are admittedly lax)

And, by the way, nothing generates tax revenue quite like the gov't getting a 35% cut of 100 million bucks.

...exactly what do you do for a living?

You wanted to create a very specific context in an attempt to demonize trial lawyers to make a point.  Gotcha.

Would Jobs' board give him $20 million a year if he asked for it? Well, let's see, Apple has the tech-industry standard seven-man board. Five CEOs, a CFO, and Al Gore. Do I think they'd give him $20 million if he asked for it? No, I don't, but I'm not on their board so I don't get a vote.

Would Steve ask for $20 million? No, he wouldn't. A huge chunk of his personal wealth consists of Apple stock, and he's the very last person in the world who would do anything to induce other shareholders to question his commitment to the company.

Sorry for the threadjack but I did find your question interesting.

Just as there aren't too many guys who can throw a ball 93 mph for six innings, there aren't a lot of guys who can manage the conflicting and competing consituencies in a public company.

Sure; the problem, however, is that baseball is a far simpler game.

All corporate officers and directors have a fiduciary responsibility to their shareholders. There is no ambiguity about this, it's well-codified in the law.

I understand.  My reference to "some executives" was a stab at being accessible.  "Officers" is not the clearest of terms.

Does it limit their abilities? No. Does it limit their options?

Much better put.

Also, many people these days speak of "stakeholders" in addition to shareholders. Although there is no specific legally-binding fiduciary duty by corporate managers to employees, customers, society at large, and the environment, most senior managers today take very seriously their duties to these groups, and they make decisions in full view of these responsibilities. Independent boards are now the norm rather than the exception in public companies, and they have helped drive this sensitivity to stakeholders.

No, no, no.  You are not your "stakeholder's" fiduciary.  It's nice to feel moral responsibility towards the community, but let's not expand the fiduciary (or confidential, it's bastard cousin) relationship any further.  (I realize that you qualified your statement with the words "not legally binding," but there is a definite trend in the US away toward finding fiduciary/confidential relationships in all sorts of novel circumstances.  I don't want to encourage it.)

About 5% holders: you need to pay closer attention to the news! The instant anyone owns 5% of a public company, they are required to make an SEC filing to disclose the fact. (Another set of required filings and additional legal requirements kick in when you own 10%.)

Good point(s).

 

I was expanding the notion of stakeholders to reflect the modern ethical sense of how a business should be run, but fiduciary duty per se is already well-defined in statutes and case law, and plenty strong enough. It would make no sense at all to extend it to non-shareholders. In fact, Sarbanes Oxley takes a big step farther and extends personal liability to directors and officers (a term which is usually well-enough defined in a corporation's bylaws for legal purposes). That means if a corporation should be found to violate the various provisions of Sarbox, its managers and directors may be at risk of losing their personal funds and freedom. This has made many of the best people far more reluctant to serve as directors, which is very bad news.

Of an attempt. The mass tort guys might as well be robbing banks or scamming old ladies out of their savings. That would be just as productive a means of contributing to society.

I likes me plunder and booty as much as the next pirate, but I have no idea what you are trying to say here.

...that question:

Ok. I'm president.

I know I part waves here w/many of my conservative brethren. But I'm sticking to my guns. And zuiko you now what I'm saying.  I'm as pro-biz as the next person "but" there's a problem in corporate America. We can all be in denial about that or we can face it head on. I heard a wise man once say "if you don't govern yourself, you will be governed." I'd much prefer corporate America govern itself rather than see the government do it or see the trade unions coming back to a position of prominence again.

I observe, evaluate and solve problems.

The government stepped in and gave us the deepest, broadest changes in the rules by which public companies play since the Securities laws of the early Thirties. This has predictably been a disaster. But businesspeople are also reforming themselves. There's a great deal more discussion of all the ethical issues at stake, as exemplified by Andersen (a few stupid idiots), Tyco (one very bad man who got what he had coming to him), Martha Stewart (G-men with stars in their eyes running amok), and Enron (deep, systemic and frightening problems requiring a lot of careful thought).

The rise of independent boards at most public companies is a big change in the right direction. I asked what you do for a living because it seems to me that if you were a manager or in any way personally connected to the things you're talking about, your data points (and your perspective) would be different.

The exponential rise in executive compensation was concomitant with the rise of independent boards. And the numbers show that people promoted from within a company to CEO make a little less, believe it or not, than those who are hired from the outside.  Therefore, board independence, while probably good, doesn't do much for compensatin.

I hadn't heard that, although I notice you used the word "comcomitant" which doesn't necessarily mean "caused by." At any rate, I think exec compensation is only a problem for Lefties like Kevin Drum. Good corporate governance is a broader and deeper problem that is a concern for all.

The "mass" tort guys?  You mean guys that do class action suits?

I used concomitant because I'm not saying one caused the other.  Just saying they accompanied one another.

And I totally agree with you.  I could care less whether Terry Semel makes $200 mill.  I just wish I could make as much!

Corporate governance is another thing, as you say,and I think independent boards are probably a good thing, but I have no data to back that up.

You said you were working on a JD. Are you going into corporate practice?

I'm not a JD, but have been (still am) involved in both senior management and governance, and independent boards are just an extraordinarily good idea. I don't need any data to back that up! As a manager, you're always wondering if your subordinates are sugar-coating things or yessing you. With a well-chosen independent board, you always know you have some quality people who are in your corner, but aren't afraid to call bull***t on you when you're being stupid. It's extremely valuable.

And I'm not going into corporate practice, I'm going to be in commercial litigation. It just happens that I'm in an Advanced Business Entities class and Taxation of Business Entities, and wrote a combined 75 pages on those topics this semester. (that's not bragging or anything, just a statement of my sad lawschool life) So I've got corporate governance on the brain 24/7.  

In fact, my Adv. BE class had an emphasis on Enron.  Our whole textbook, believe it or not, was about the Enron fiasco.  That's neither here nor there, just FYI.

You say: "But businesspeople are also reforming themselves." Then we agree. We both see that business has a need to reform. Or why reform? And reform from what? Reform from something negative or undesireable, of course. And will they reform fast enough? Before the dems get back into power and then there'll be heck to pay.  Blackhedd I'm not saying that there are no honorable folks working in corporate America. I'm certain your one of them and thankful for that fact. What I'm saying is that there is too great a percentage of bad apples in corporate America. Like the ones you mentioned.  I hope your correct and it all pans out the way your map shows. And we do reform ourselves. "Not just have meetings about reforming ourselves." And back to what I do. Well I'm involved. I have a great vantage point from where I sit and see that many great American companies have lost sight of their original mission. There seems to be only one unspoken but understood priority. And thats to make more money this month/quarter/year than last. The customer, employees, manpower needs,  quality products/service, and fairness take a back seat. Short term thinking. Destructive.  Like it or not, we're really on the same side here.