My labor and employment law colleague, Phoebe Williams, who also teaches business associations, brings to my attention the roles unions, as shareholders, are seeking to play in the current government bailout scheme.
According to the Risk and Governance Blog:
The Laborers’ International Union of North America and the International Brotherhood of Teamsters are filing new proposals that seek compensation reforms at companies that participate in the U.S. Treasury Department’s bailout program.
In the supporting statement for these 2009 resolutions, the labor funds argue that the pay restrictions in the Treasury’s Troubled Asset Relief Program (TARP) “fail to adequately address the serious shortcomings of many executive compensation plans.” Instead, the unions urge directors to adopt “more rigorous executive compensation reforms that we believe will significantly improve the pay-for-performance features of the Company’s plan and help restore investor confidence.”
Continue reading “Unions, As Shareholders, Use Bailout to Push Executive Compenstion Reforms”
One of the principal things a new administration is going to have to address in the area of corporate law is how to encourage business managers to properly assess the long-term risks facing their businesses, and to manage those risks so that their businesses are sustainable in the long-term. The need for U.S. businesses, on which Americans rely for jobs as well as many basic goods and services (such as banking and insurance), to appreciate and guard against the long-term risks associated with their business activities should be evident from the current financial crisis, which stemmed in large part from financial institutions’ failure to appreciate and guard against the risks associated with the complex mortgage-backed securities and derivative instruments they held and the inevitable bursting of the housing bubble. As a consequence, Americans not only worry that their investments (including retirement and life savings accounts) held by these financial institutions might be at risk, but they also question the long-term stability of the U.S. economy.
So what should a new administration do to make businesses better appreciate, and protect themselves from, the long-term risks associated with their businesses? Continue reading “Priorities for the Next President: Corporate Law”
So last week when I received my TIAA-CREF statement (like many professors, I assume) you might have heard me scream from Milwaukee. But now I have a better idea –- I should be running the market! Tim Harford, a columnist for the Financial Times and author of The Logic of Life: The Rational Economics of an Irrational World explained last week on NPR that men are too hormonal to be running Wall Street. Yes, let me repeat that, men are too hormonal. As Mr. Harford explains,
There’s a former Wall Street trader who is now a researcher at Cambridge University in the UK. His name is John Coates. What he told me was that when he ran a trading desk in Wall Street during the last dot com boom and bust, he found that his traders were exhibiting almost physical symptoms of mania. So they were punching the air. They were yelling. There was – not to put too fine a point on it – there was more pornography floating around in the office. This is of course is a very masculine, macho environment. But what John Coates also noticed was that the few women who were on the trading floor didn’t seem to be affected.
Continue reading “Why Women Should Control Wall Street”
The current crisis our nation faces on Wall Street and in the broader economy will be the primary focus of the next President. The crisis is complex, with many facets, and any solution will be equally complex. Issues such as the effectiveness of regulatory oversight versus deregulation, the transparency of specific types of financial transactions and market actors under current law, and the proper accounting rules to ensure an accurate depiction of a banking institution’s financial health will all be part of the debate over how to resolve the present crisis and how to prevent a future recurrence. However, my advice to the next President is that he should not overlook the beneficial role that private civil lawsuits under the securities laws can play in deterring risky market behavior.
Much has been made of the greed and speculative fervor that gripped the investment professionals on Wall Street. Clearly bets were being made with borrowed money that risked the very existence of institutions that are necessary to preserve the liquidity of capital in our markets. Expanding the oversight of the Treasury Department, increasing the transparency of transactions that involve derivatives and hedge funds, and re-examining accounting rules may all be necessary components of a plan to avoid such risk-taking in the future, but they will not be sufficient in and of themselves. From personal experience in the boardroom, I can vouch that nothing deters executive approval of speculative investment strategies as much as the prospect of a potential civil lawsuit if the deal goes sour.
Continue reading “Priorities for the Next President: Securities Regulation”
The reaction is rightfully upset after reading news like this:
Up to 10,000 staff at the New York office of the bankrupt investment bank Lehman Brothers will share a bonus pool set aside for them that is worth $2.5bn (£1.4bn), Barclays Bank, which is buying the business, confirmed last night.
The revelation sparked fury among the workers’ former colleagues, Lehman’s 5,000 staff based in London, who currently have no idea how long they will go on receiving even their basic salaries, let alone any bonus payments. It also prompted a renewed backlash over the compensation culture in global finance, with critics claiming that many bankers receive pay and rewards that bore no relation to the job they had done.
Continue reading “British Reaction to Crash of 2008 and the Bonus Pool for Lehman Executives”
Not a surprising development at all. From BNA Daily Labor Report (subscription required):
As several heavy hitters in the financial world have come under pressure or have gone bankrupt in the past couple of months because of the subprime mortgage and lending crisis that has battered investment firms and banks, the employer “stock drop” cases that proliferated in the post-Enron Corp. and post-WorldCom Inc. age are on the rise.
Although the Employee Retirement Income Security Act claims raised in these stock drop cases have not been identical, there are two central claims that arise in these cases. The first claim typically raised is that the plan fiduciaries breached their duties by offering company stock as a plan investment option when the stock was an imprudent or unwise investment. The second claim focuses on the disclosure obligations of the plan fiduciaries and often alleges that the fiduciaries breached their duties by not telling plan participants of financial matters of the plan sponsor that made the sponsor’s stock an imprudent investment.
Continue reading “Wall Street Collapse = ERISA Stock Drop Litigation”
Continuing our faculty workshop series, Nadelle Grossman presented a work in progress earlier this week entitled “Clarifying the Long-Term Nature of Director and Shareholder Fiduciary Duties.” Her presentation examined the various factors that have magnified the influence of short-term institutional shareholders, such as hedge funds and activist investors, over the decisions of corporate management. These factors include the way the market punishes firms that fail to meet their quarterly earnings targets, the incentives of money managers to maximize their own fees by boosting the share price of their holdings, and the increasing effectiveness of the shareholder franchise. Professor Grossman argued that the increasing influence of the “short-termers” has impaired management’s ability to set a long-term strategy for the corporation. Her thesis is that the fiduciary duties of directors and institutional shareholders should be re-examined in order to promote the adoption of business strategies with longer time frames. Continue reading “Addressing the Short-Termer Problem in Corporate Governance”
My colleagues Nadelle Grossman and Kali Murray have recently prepared this informative podcast regarding the implications for I.P. licensing of the Supreme Court’s recent decision in Quanta Computer, Inc., v. LG Electronics, 128 S.Ct. 2109, 170 L.Ed. 2d 996, 76 USLW 4375 (June 9, 2008). I understand that this will be the first in an occasional series of podcasts on current issues in intellectual property prepared by Marquette’s I.P. professors. This is an exciting new venture, and I look forward to hearing their future productions.