Comments on: Revisionist corporate governance

By: TRUTH ON THE MARKET » The optimal level of risk is not zero

TRUTH ON THE MARKET » The optimal level of risk is not zero — Thu, 17 Sep 2009 19:08:26 +0000

[...] I have said it before and I’ll say it again: All of this hand wringing over executive compensation seems to exist in a parallel world where corporate executives have no risk aversion, where there is no real competition for managerial talent, and where firms can only take on too much–never too little–risk. And this in a day and age (the age of never-ending financial reform regulation, Lehman/Bear, enormous public scrutiny of financial and banking industries, etc.) when the downside from excessive risk-taking is now either a) extremely large or b) non-existent (but only because of guaranteed government bail-outs). In either case, fiddling with compensation schemes will not help matters. [...]

By: ProfessorBainbridge.com

ProfessorBainbridge.com — Wed, 03 Jun 2009 18:56:42 +0000

SEC to Revive Katie Couric Rule?…

The WSJ reports that: The Securities and Exchange Commission plans to propose that companies disclose in general terms how they compensate lower-ranking employees, expanding disclosures for the first time beyond the executive suite. The proposal is par…

By: MHodak

MHodak — Sun, 31 May 2009 17:06:10 +0000

There were two things about the Blinder article that appealed to me. First, I found his nominal concern about pay structure, as opposed to a myopic focus on pay level, to be refreshing in this “eat the rich” environment. Second, I appreciated Blinder’s belated humility about the efficacy of government intervention in compensation matters, which has been a serial comedy of unintended consequences. Blinder rightly points out that this is an issue only the board can address.

Like you, I think he didn’t go far enough in appreciating the underlying agency issues. I also think he grossly understated the incentives at top management levels to get it right. Dick Fuld may have lacked the proper foresight or wisdom or intelligence to avoid what befell Lehman, but someone please explain to me how, after losing 90% of his net worth and 100% of his legacy, he lacked the proper incentive?

The irony of assigning a common title to Jensen & Murphy’s paper and Blinder’s column is that J&M’s compelling vision of adding significant executive incentive leverage was combined with the Clinton/Blinder constraints on salary to create the explosion of stock options that eventually resulted in the asymmetrical risk/reward issues Blinder now bemoans. Which goes to support your point that these issues are hard to solve, even for people with the greatest interest and knowledge in doing so.

By: Anon

Anon — Sat, 30 May 2009 13:52:53 +0000

What do you think of this proposal promoted by Surowiecki (at the URL above):

“There are ways to make boards proactive and more than nominally independent. Investors need to be able to play a much bigger role in determining who ends up on boards, nominating candidates themselves, instead of choosing among the C.E.O.’s picks. (The S.E.C. is currently considering a proposal to make it easier for big shareholders to do this, which would be a good start.) On top of that, it’s time to revive an idea that was first floated by the corporate-law scholars Ronald Gilson and Reinier Kraakman, who proposed that big institutional investors create a cadre of full-time directors, people whose only job would be to sit on corporate boards and look after shareholder value. Most board members, accomplished as they may be in their real jobs, are amateurs when it comes to being directors. So it shouldn’t surprise us when they get buffaloed or pushed around by C.E.O.s, who are professionals. Right now, boards are made up of moonlighters. And, if the last few years have shown anything, it’s that protecting shareholder interests is a full-time job.”