Corporate Governance

Corporate Governance, the Bailout and a Lost Opportunity (Part 4)

By J. Robert Brown

The one corporate governance provision left in the Bailout Bill (say on pay and access were stripped out) was a limitation on executive compensation.  As experts note, these will likely be difficult to implement.  First, they only apply where the government takes a "meaningful" debt or equity position in a company.  Second, they only prohibit pay that creates incentives for  "unnecessary and excessive risks," language that Treasury will have to implement.  As the WSJ noted:

• Few dispute Wall Street firms took too much risk, but there is little consensus on the role of pay packages in encouraging that behavior -- or how to prevent it from happening again. Some experts say that banks such as Wells Fargo & Co. avoided the worst of the mortgage mess, even though their compensation plans were similar to those at banks that suffered big losses.
  

Despite these practical difficulties, the consequence is likely to be more conservative pay packages in the financial industry, at least for companies participating in the bailout.  The provisions will likely demonstrate that with some degree of oversight and control, the escalation in executive compensation slows.  This will provide an empirical foundation for the argument that the escalation is directly tied to the lack of meaningful standards set under Delaware law.

Full post as published by The Race to the Bottom on October 06, 2008 (boomark / email).