Posted
by Carl Icahn September 26, 2008 : 11:02 AM
John McCain and Barack Obama finally agree on
something: corporate accountability.
'Say on Pay' has become a hot topic in the
2008 elections and highlights our faulty corporate structure. 'Say on Pay'
may be the first step in emphasizing to our political leaders how important
corporate governance is to the United States economy.
The other day, I watched CNBC anchor Melissa
Lee say, "…both presidential candidates railing against high executive pay
at failed firms Fannie Mae and Freddie Mac and certainly the GSEs (are) not
the only troubled firms giving multimillion dollar send-offs to departing
CEOs. It has happened at Merrill Lynch, it has happened at Citigroup, the
list goes on and on." Now executives at Lehman’s New York office that may be
directly responsible for the world’s largest corporate bankruptcy are to
share a $2.5 billion bonus courtesy of its deal with Barclays. Should a top
executive pocket big bucks even if the company is failing?
Good question. The answer is NO.
Aflac, run by CEO Daniel Amos, became the
first public U.S. company to allow shareholders a nonbinding vote on
executive compensation. This is now referred to as 'Say on Pay.' Although
shareholders did not secure the power to determine executive pay at Aflac,
they did obtain the ability to present their views on compensation awarded
the year prior. This might seem like a big improvement, but it is in
actuality a baby step in the battlefield for improved corporate governance.
Mr. Amos' comment, "it’s symbolic, but it’s
an important symbol," is true but nonbinding clearly does not give
shareholders much say at all.
The Say on Pay bill was passed by the House
of Representatives on April 20, 2007 after being introduced by Financial
Services Committee Chairman Barney Frank, a Massachusetts Democrat. The
Aflac vote was held at its May 5 annual meeting where 93% of shares were
voted in favor of Say on Pay. With elections around the corner, it might be
beneficial to highlight what candidates have said about Say on Pay and
executive compensation:
Obama: Senator Obama
introduced a companion bill in the U.S. Senate on the same day the House
bill passed requiring public companies to give shareholders an annual
nonbinding vote on executive compensation.
An Obama speech attacks CEOs "who are making
more in one day than their workers are making in a year." He states, "It's
about changing a system where bad behavior is rewarded so that we can hold
CEOs accountable, and make sure they're acting in a way that's good for
their company, good for our economy, and good for America, not just good for
themselves."
The WSJ reports in an article entitled
'Candidates Target Executive Pay' that, "Obama staffers … renewed his
request for Senate hearings on the measure. If the 'say-on-pay' bill doesn’t
pass this year, 'it will be a priority for Senator Obama as president,'
campaign policy director Heather Higginbottom says."
This past week Obama stated, "The American
people should not be spending one dime to reward the same Wall Street CEOs
whose greed and irresponsibility got us into this mess. Not one dime." CEO
accountability is probably the only issue where Obama and I agree. But Obama
should demand it be binding.
McCain: Sen. McCain joined
in under his proposed reforms. BusinessWeek’s 'McCain Seeks Shareholders Say
on Pay,' says the candidate believes that "all aspects of a CEO's pay,
including any severance agreements, must be approved by shareholders."
McCain also takes a strong stance on
corporate accountability: "Something is seriously wrong when the American
people are left to bear the consequences of reckless corporate conduct,
while the offenders themselves are packed off with another forty - or fifty
million for the road. If I am elected president, I intend to see that
wrongdoing of this kind is called to account by federal prosecutors."
In regards to Fannie and Freddie he states,
"We’re looking at a costly government-led restructuring of our home loan
agencies and we need to keep people in their homes, but we can’t allow this
to turn into a bailout of Wall Street speculators and irresponsible
executives."
I agree. I don’t think we should bail out
irresponsible executives either.
Even Senator Hillary Clinton introduced a
bill (S 2866) to the Senate on April 15, 2008 that would require a
shareholder advisory vote on a company’s executive compensation package. In
addition, it would revise Section 304 of Sarbanes-Oxley, which would
surrender incentive-based or equity-based executive compensation if an
issuer is required to restate an accounting statement due to misconduct, and
to increase the observation period to 36 months from 12 months. The bill
includes a definition of misconduct to incorporate the backdating of stock
options and accounting irregularities.
Say on Pay is important for its
acknowledgement of shareholder rights and for its placement of this issue on
the national political scene. That is why I supported this first step by
recommending Blockbuster's adoption of Say on Pay. This should lead to
legislation with real substance; legislation that will protect the
shareholder franchise and ultimately strengthen the management teams that
run the greatest engines of our U.S. economy – public corporations.
Join the campaign.
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