Corporate Governance

From the Pages of The Pomerantz Monitor: Corporate Library Sounds Off on Executive Over-Compensation

By Carolyn Moskowitz

The Corporate Library is a research firm devoted to business in general and corporate governance in particular. It specializes in accumulating massive amounts of information about the performance and management of public corporations, which it stores on a database available by subscription. 

But the Library is not merely a source of information. Nell Minow, CEO and co-founder of the Library, is a shareholder activist; and so is the other co-founder, Robert Monks, who also created and now runs Institutional Shareholder Services. Minow has advised Congress and the Treasury Department on the recent financial crisis; and the two of them have been involved in successful shareholder campaigns to oust the CEOs of American Express, Kodak, Waste Management, Westinghouse, and other companies. Minow is an adviser to Congress and the Treasury Secretary on compensation issues. Her take on massive bonuses handed out at bailed out firms: ?these guys are doing more to destroy capitalism than Marx.?

As reported in the New Yorker magazine, Minow is not a fan of government efforts to limit compensation. The last major attempt to rein in executive compensation by the government was a change in the tax code limiting the deductibility of cash compensation to executives to $1 million. In hindsight, this reform effort backfired, because it encouraged companies to find different ways to lavish compensation on executives, such as through exorbitant incentive awards and stock option grants, which eventually ballooned into the current mess. In general, government is far less clever in devising financial controls than business is in circumventing them.

Minow believes that full disclosure, coupled with enhanced shareholder rights and duties, is the way to go, and that institutional investors, such as pension plans and mutual funds, should be prodded into taking more seriously their fiduciary duties towards their investor clients.  

Minow?s position is that if the CEO is being grossly overpaid, the company will likely tank; and she has developed, over the years, a list of tell-tale signs of excess, including granting stock options with strike prices below current market value (Global Crossing); granting retirement packages to CEOs who don?t actually retire (Halliburton?s deal with Dick Cheney); having directors who own little or no company stock (Enron); lowering the bar for incentive performance awards when performance worsens; approving retention bonuses for CEOs serving a prison sentence (Fog Cutter); excluding certain types of felonies as grounds for dismissal for cause (Tyco); and directors? frequent absences from board meetings.  

Full post as published by PomTalk on December 23, 2009 (boomark / email).