George Bush, Access, and Executive Compensation

Executive compensation is the poster child for problems in the realm of corporate governance.  It is not simply that top executives are sometimes grossly overpaid, it is the view that the board turns a blind eye to the matter.  This suggests a broader problem, that the board is more willing to look out for the interests of management than shareholders.  It is a rational strategy.  With board seats often providing a lucrative sinecure, directors are more likely to keep their position by accommodating officers rather than shareholders. 

One person who thinks there is a problem with executive compensation is President Bush.  He has criticized the practice, most recently in an interview with theWall Street Journal.  As he noted:

• Now, do I think some of the salaries are excessive at the top? I do. I do, and I've spoken so publicly. I don't think it's a role of government to regulate salary. But I do believe it's the role of boards of directors to be very transparent with shareholders about these different packages, the employment packages that these executives get. And I do think it's very important for a board of directors to make sure that the shareholder benefits more than the chief executive officer does, or the chief operating officer does. I don't care for that situation where the company loses money, but the people at the top benefit. I am concerned about that.

One would think that this position would suggest a pro-shareholder approach.  Yet while talking the talk, the administration does not walk the walk. 

Little has been done to address these issues.  Stepped up disclosure by the Commission has simply not worked.  As I have written, disclosure as a method of regulating substantive behavior has limited value.  Moreover, where substance has been at issue, the administration has been undependable.  The administration has opposed shareholder accountability by seeking affirmance of the 8th Circuit's opinion in Stoneridge and it looks like the Commission is about to approve non-access for shareholders. 

The problem of executive compensation (and other issues of interest to shareholders) has arisen from weak fiduciary standards under state law.  The only ways to fix the problem are to preempt state law and impose meaningful standards at the federal level or give directors an incentive to act in the best interests of shareholders.  That is what the access proposal is all about.