Archive for October, 2008

The candidates and corporate governance reform

Carl Icahn, whose blog is an excellent source for opinion on shareholder activism issues, wrote a great post a few days ago laying out the candidates’ positions on “Say On Pay,” the legislation that would require firms to hold an advisory shareholder vote on executive compensation. Both candidates have endorsed the “Say on Pay” idea quite strongly, and Obama has said it would be a priority in a new administration. Icahn also notes that Senator Clinton introduced legislation in April of this year (when she was pretty busy campaigning, I recall) that included not only “Say on Pay” but also an amendment to Sarbanes-Oxley that would legislate “clawback under restatements” (ie it would require executives to surrender incentive pay that was awarded based on financial results that subsequently had to be amended).

These are encouraging signs for shareholder activists. Shareholders can push for governance changes at the companies they own (e.g. convincing the board to introduce “say on pay,” as happened a AFLAC) but legislative solutions will change the game more quickly. I like to think that corporate governance reforms such as these create enough value that well-managed firms will adopt them without Washington getting involved. In some cases, this is true; for example, independent directorships were on the rise before Sarbanes-Oxley created explicit independence requirements. Legislation moves rules faster, and firms (well-managed and otherwise) are forced to comply. It will be interesting to see how fast legislation moves in the next session of Congress, and to what extent corporate behavior changes as a result.

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October 4, 2008 at 12:09 pm 1 comment


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