• Government Capping Compensation?

As you shelter yourself in a cool closet from the hailstorm of healthcare promotion, Congress and the President are sliding into home plate with compensation controls in the senior offices of financial firms, … for starters. The new Corporate and Financial Institution Compensation Fairness Act will provide no other than the SEC with the ability to establish the rules on how executives are paid, and will enable government agencies to effectively control the “inappropriate risks,” practices of financial companies. Institutions with less than $1 billion in assets will be exempt. This further intrusion into the fiber of corporate America by those who have completely failed in carrying out their responsibilities to the electorate is another misguided kneejerk reaction.

This bill will empower government bureaucrats to control compensation plans that will threaten the safety of financial institutions, or adversely impact economic conditions or financial stability. Have no fear, the newly hired experts will figure this part out, what it means and how to implement it, and they will diligently look after your interests.

There’s hope, however, with some minor good news in this bill that resides in its provision for procedures for shareholder approval of golden parachutes. What this portion of the bill looks like in final form will dictate whether or not it makes any sense, but in the meantime, three cheers for the crumbs thrown at demands for common sense. We shall not hold our collective breath. Another clause that might have provided teeth in a corporate structure fix was the providing of a voice to shareholders on executive pay. It failed miserably in its final form, since the shareholder vote on executive pay will be non-binding, therefore will leave shareholders where they were before, … “we’ll tease you with a little influence on the company you own, but, … naah, just kidding, get lost and go back to your trading screens.” Shareholders, large and small, should have greater influence on the proceedings of the public companies they own, and such influence should be addressed at the Board of Directors level. The government is not improving the lot of shareholders, but is escalating its own intrusion into the boardrooms of America.

We should remember that this is the same Administration and Congress that couldn’t even track the bailout money, or put strings on the money to restrict it from getting dished out in the form of bonuses. This is also the government that threw those billions at financial institutions on the pretext that they had to be bailed, to avert a depression, yet no one in government could tell you where that money actually went. So how was it, exactly, that those bailout billions were allocated? The toxic assets could not be defined or audited, which means that the fear mongering and threats were outright lies. Wall Street skunked this Administration, as well as the last one, and as a result a colossal extortion of the taxpayer was allowed. Did anyone making these horrendous decisions ask the hundreds of thousands of businesses from coast to coast what their banking preferences might be? … Would you rather deal with a gigantic-too-big-to-fail-market-dominant bank headquartered in New York, or a medium or smaller sized regional bank? When did “failure” get expunged from the dictionary of American Capitalism?

Government intervention has reduced competition in the banking sector, allowing the favored few bailout-receiver-therefore-government-backed behemoths to attract investor support, and has enabled their acquisitions of not so fortunate competitors.

All of this frenzied government activity pretends to be response to the outrage against some of the insanity exercised by some like AIG, Goldman Sachs, and Morgan Stanley. The $11 billion plus, awaiting the bonusable at Goldman should soon make for incendiary fireworks, and support the government cause. Using public anger as cover to implement invasive measures is rather expected from a government that has failed to acknowledge or accept any responsibility for the environment that incubated the bubble which burst into a recession. Giving more power to vehicles such as the SEC for example, reminds us of the abject incompetence the SEC demonstrated through the economic extravagance that allowed Wall Street the power and influence to exploit, and then erode, the financial health of the Nation. Did the SEC also not have a front row seat to Bernie Madoff’s implementation of an extensive 40 year long grotesque personal compensation program?

Sweeping expansion of government incompetence into corporations is an invasion that will not be reversed. Other more intelligent policies should be considered instead of launching clusters of bureaucrats to invade company offices in all corners of the country. One could consider implementing laws against monopolies, but it would be more effective to start with segregating the large banking institutions into more pure line of business sectors. It really comes down to reinstating certain portions of the Glass-Steagall Act that was repealed in 1999. Hundreds of millions were expended by the large banking institutions to achieve the repeal of the Act, therefore a reversal would be very difficult. Given the present climate of Washington dependence on Wall Street cash, even “difficult” might be a stretch, however, such reinstatement would bring back some peace of mind to taxpayers in the long-term.

The critical functions provided by undistorted banks operating within narrow guidelines should be reconsidered. The contamination of many banks over the past decade, with the annexation of such things as brokerages, and the underwriting or trading of complex securities, should be reversed. Government should direct existing oversight bodies to perform their duties, including the enforcement of laws dealing with asset requirements, capital ratio leveraging, and lending guidelines. Then, government might provide shareholders with more teeth to bite when necessary, and leave them to rule over freshly formed and more independent Boards of Directors.

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• YAHOO’S BOARD AND ITS SHAREHOLDERS

Here we are again at the whining post of shareholders lamenting the sale that might have been. There is a rueful cry heard from Yahoo shareholders that $34 would have been a great price at which to have sold their shares. The original $42 billion plus in cash and shares bid from Microsoft was at the time, and in retrospect, an astronomical sum. By any objective measure, this was an overpayment inflated with ebullience. Yahoo’s share price currently languishes at around $25 and Microsoft’s has slid from over $37 last year to today’s $29. The well over $40 billion dollar hoard would have even choked Microsoft, … and Yahoo’s response?

The Yahoo Board responded with a nonplussed, and perhaps baffled, “the proposal substantially undervalues Yahoo!” Where have these Board Members been for the past five years? More importantly, where have they been since Microsoft stepped forward? Was anyone surprised at the time of the offer that there was no parade of sign-brandishing shareholders marching up and down First Avenue in Sunnyvale, California? Why were they not clamoring for the Board to get the deal done? Greed, and absurd expectations had long set-in.

It was also evident that for the few Yahoo shareholders remaining with any signs of common sense, the corporate structure provided little real possibility for input or influence on direction. When large shareholders have to file lawsuits to be heard, such as the Detroit public employees pension fund and the Detroit firefighters and police pension fund, the cracks in the corporate system are evident. This is another glaring example of broken corporate governance and the need for reorganization, particularly in the Boards of Directors. This is also evidence of some abject and shameful incompetence.

On behalf of the shareholders, if for no one else, the Yahoo board should have dispatched an emissary to set up a tent inside Balmer’s office, keeping the dialogue alive face to face. At least the shareholder interests would have been more diligently attended to, while the rest of the misguided Board Members, as well as their ineffective consultants and advisors, were going about embarrassingly scrambling for dead-end negotiations with AOL or Google. Microsoft might have actually been convinced to remain at the table with something close to the original and enormous offer. Something might have been negotiated, providing some level of autonomy to the Sunnyvale organization within the fold of the giant’s garment. Details of a relationship with respect to merging of some services, methodologies and technologies might have been set out, and provided evidence of “good faith.” This would have been the minimum expectation of conscientious and assiduous management. This should have also been an expectation of the shareholders. They were failed by pride first, and bad advice second.

On the Microsoft side, the shareholders also need to find the next leader that will lead this giant into this century. Microsoft is so large and flush with cash, it still doesn’t know the year 2000 came and went. It hasn’t needed to. For continued growth, Microsoft should be injected with some vision on what the Internet can become over the long term, or purchase a company that does. Even if tempted in the future, it should leave Yahoo alone. This didn’t start out well and probably wouldn’t end well on the domains of synergy. For the rest of us non-Yahoo-shareholders seeking innovation and competition, the breakdown of the deal is to our advantage in the long term. Thanks, Yahoo Board Members.

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