Corp Governance with Public Companies

[chinaco]

In many large public companies, the CEO's tenure is short.

It seems to me that this lead to do whatever to grab whatever you can before you exit... leave the problem for the next opportunist to fill the seat.

Boards are often fill with people who rubber stamp it... CEOs of other companies (who do the same).

Strong claw-back provisions in pay would be desirable. If certain compensation were also deferred and only payed at intervals over say 10 years along with claw-back provisions would make it much stronger.

Because public corporations often have fragmented and low concentration of ownership, it is difficult for owners to enact reasonable measures.

I am one that hopes these measure are enacted... even if foisted on public companies by regulators (or law).

Once people get past the political rhetoric... one would hope they understand how the actions of (many... maybe most) have hollowed out America over the last 35 years. Often their actions have not benefited the owners (which is us).

Now days, some of the biggest investors are pension funds and mutual funds (defined contribution plans). We are the ones being robbed when corporate officer personal opportunism occurs.

 

[ziggy29]

One of the things I've long disliked about the publicly held company model is the emphasis on short-term results at the expense of the long term. There's often so much pressure to "hit the numbers this quarter" that executives make decisions they know are not the best in the long term as long as it will allow them to appease Wall Street *this* quarter.

 

[MichaelB]

In many large public companies, the CEO's tenure is short.

It seems to me that this lead to do whatever to grab whatever you can before you exit... leave the problem for the next opportunist to fill the seat.

Boards are often fill with people who rubber stamp it... CEOs of other companies (who do the same).

Strong claw-back provisions in pay would be desirable. If certain compensation were also deferred and only payed at intervals over say 10 years along with claw-back provisions would make it much stronger.

Because public corporations often have fragmented and low concentration of ownership, it is difficult for owners to enact reasonable measures.

I am one that hopes these measure are enacted... even if foisted on public companies by regulators (or law).

Once people get past the political rhetoric... one would hope they understand how the actions of (many... maybe most) have hollowed out America over the last 35 years. Often their actions have not benefited the owners (which is us).

Now days, some of the biggest investors are pension funds and mutual funds (defined contribution plans). We are the ones being robbed when corporate officer personal opportunism occurs.

Not quite sure what you are proposing. Shareholders are not entitled to vote on CEO or BoD compensation, nor are they entitled to nominate BoD members. They can only vote to approve or reject Directors nominated by the CEO.

 

[chinaco]

Not quite sure what you are proposing. Shareholders are not entitled to vote on CEO or BoD compensation, nor are they entitled to nominate BoD members. They can only vote to approve or reject Directors nominated by the CEO.

Not proposing anything... just a rant about the problem (and lack of ability to fix it).

What set me off was an article I read about banks lack of due-diligence in underwriting mortgages and then selling them off.

There is some discussion about suing the banks or forcing them to take the loans back.

The people running the show are long gone with their bonuses and golden parachutes.

 

[ziggy29]

The people running the show are long gone with their bonuses and golden parachutes.

Yep -- kick the can down the road so it won't blow up for another 5 years, and I'll be gone with my fat bonuses for "hitting the numbers" this quarter even though it hurts the company in the long run.

It's a disgraceful thing. I'm just not smart enough to know how to fix it without too much heavy handed government control of private enterprise.

 

[MichaelB]

Not proposing anything... just a rant about the problem (and lack of ability to fix it).

What set me off was an article I read about banks lack of due-diligence in underwriting mortgages and then selling them off.

There is some discussion about suing the banks or forcing them to take the loans back.

The people running the show are long gone with their bonuses and golden parachutes.

I understand. This is what people don't get. Much of this happens because our regulatory framework has been rewritten over the past 2 decades, influenced by wall street and corporation lobbyists. As we attempt to change that – as a country – there is massive resistance, even from the people most negatively affected. An example is the SEC rule, approved this past August, that allows a shareholder to nominate a Director to the BoD. After all, shareholders are owners, and this new authority is quite limited: 3% ownership for more than 3 years is the prerequisite. IMHO this is a severe limitation and only large pension funds will have the opportunity. And even with the rule CEOs can avoid losing control of the board by staggering the BoD elections.

Regardless, the pushback to this rule change was strong and acrimonious, but also widespread, with "grassroots support" and concerns about corporate competitiveness. The private effort to continue to modify our regulatory system, along with the public campaign to defend it, has been very sly and crafty – and very well executed. And in the meantime, some corporate execs and bankers are making off like bandits - and acting like them as well.

Its no wonder income is concentrating at the top.


PS edit: By the way, this is probably the most bipartisan effort we have seen in our congress over the past 2 decades. Members of both parties - both congress and executive branch - have collaborated and contributed mightily and benefited handsomely.

 

[MichaelB]

Thomas Jefferson said:

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

 

[harley]

One of the things I've long disliked about the publicly held company model is the emphasis on short-term results at the expense of the long term. There's often so much pressure to "hit the numbers this quarter" that executives make decisions they know are not the best in the long term as long as it will allow them to appease Wall Street *this* quarter.

And this is different than gov't and it's elected officials how? You get elected, and from day one you have to pander to people and organizations to get set up for the next election. Actually, now that I re-read my words, I think the CEO process is actually more efficient. They DO get more compensation for producing results, both short term and long term. I'm not saying I don't think changing their incentives to point more toward long term wouldn't be a good idea. But they still have more incentive to produce long term than elected officials do.

 

[dex]

Not proposing anything... just a rant about the problem (and lack of ability to fix it).

Now the COO is the defacto owner of the company because the USA has become investors and not owners - large # of shares outstanding, low price/share, easy to buy and sell. If you wanted to change that take a page for Berkshire Hathaway. Also, look towards Europe as to why their COO don't get paid as much as USA - I don't know the reason.
Many China companies (not owned by the government) are owner/run or closely held.

 

[ziggy29]

And this is different than gov't and it's elected officials how?

Did I say it was different?

Is being critical of some aspects of private enterprise assumed to be some blanket endorsement of more government?

Why is some criticism of private enterprise assumed to be a statement that more government is the answer, and vice versa?

I think we have to get over this "false dichotomy" that either puts all its faith in private enterprise or in more government.

 

[harley]

Did I say it was different?

Is being critical of some aspects of private enterprise assumed to be some blanket endorsement of more government?

Why is some criticism of private enterprise assumed to be a statement that more government is the answer, and vice versa?

I think we have to get over this "false dichotomy" that either puts all its faith in private enterprise or in more government.

The point I was making was more to the effect that power corrupts. The only way to change the behavior of those with the power to either fix or royally screw tings up is to align their incentives with our best interests. And that's a really hard thing to do. Our system of gov't doesn't lend itself to it, and I can't think of any way to change the incentives significantly without changing the form of gov't. And I'm not sure I want to do that.

As I was implying, I think that right now corporate governance is actually more in line with the public good than gov't governance. I do think we could change corporate governance to the positive side with a different type of contract that is paid out over time, with clawback capabilities (escrow?) for things like fraud and abuse. I'm not sure how to deal with the BoDs, except maybe term limits or something like that. The problem of course is that the people who would need to make the changes are the ones standing in the way of the changes. Viva la Revolution!