@SMDavisYaleGov Stephen Davis. Debate on exec pay: time to replace alignment, paying CEOs simply as employees? See U-Turn For Exec Comp? 23 people gathered in a windowless conference room at a convention hotel in Paris. The ostensible reason was to comment on the work of the International Corporate Governance Network’s remuneration (executive compensation) committee… Then, a fundamental issue was raised.
Why, Jon Lukomnik asked, do institutional investors keep preaching alignment?
We’ve been doing that for two generations and it has not worked. Perhaps it’s time to admit the obvious: Shareowners’ interests and executives’ are not perfectly aligned and cannot be made to be perfectly aligned. Perhaps it’s time to admit that fact and return to an old idea: Management, even senior management, are employees. They ought to be fairly – and I’d say even generously compensated – but they are employees of the corporation not suppliers of capital.
The comments came quickly, as if a dam had been broken. “We’ve become too complex,” “Even boards don’t know what they’re paying,” etc. Later, in a plenary session, a banker basically admitted as much, saying that for senior bank executives, compensation had become a slot machine: They pull a lever and three years later out comes a trickle of coins or a fountain of folding money.
I think the slot machine analogy is perfect. These complex compensation systems are a crap shoot. There’s also the issue of continuously ratcheting pay that has led me to help the USPX draft Shareowner Guidelines for Say-on-Pay Voting.
A few more snippets from ICGN:
@anthonygoodman Anthony Goodman – 71% of #ICGN11 members think combined chairman/CEO role undermines French model of corporate governance. But that is the model, surely?
@fayfeeney Fay Feeney That’s great! RT @sherylinmotion 37% of those surveyed say they are not currently using social media but will start tomorrow!
@fayfeeney Fay Feeney Tweets from @ericjackson @santiagochaher @SMDavisYaleGov #SMCG 21 people tweeting at #ICGN11 reach 13, 795 followers. http://ow.ly/6tw0O @ICGNConference Social Media in Corporate Governance On the Panel: Santiago J.D. Chaher, Managing Director, Cefeidas Group, Argentina. Eric M. Jackson, Founder & Managing Member, Ironfire Capital LLC, USA
Moderator: Dr. Stephen Davis, Executive Director, Millstein Center for Corporate Governance & Performance, Yale School of Management, USA
Consumer upheaval changed GAP to change their logo after a social media rage, President Mubarak was forced to resign partly due to efficient use of Facebook and Twitter, Wikileaks changed the military tactics in Afghanistan.
But the social media revolution is yet to come in corporate governance. Will it lead to new means of shareholder democracy? Is an emerging culture of leaking information threatening the concept of the controlled corporation. This session will cover the development so far and will ask the participants to look into the crystal ball.
My take: I think social media will change everything. Shareowners will get together in groups prior to annual meetings as deliberative bodies, writing proxy proposals, even nominating directors. It make take a few years but Corporate Spring is coming.