Governance Center Blog

Apr
29
2010

Corporate Governance Changes Still Linchpin of Financial Reform

Whether or not you have been watching the Goldman Sachs “synthetic CDOs” hearings, it has become more and more clear that the corporate governance parts of the legislation will remain when the financial regulatory reform is finally passed.

Let’s be honest, those will have the most effect on public boards. Sure, the regulation of the derivatives market, creation of a consumer financial protection agency and instituting the so-called Volcker Rule (named after former Fed Chair Paul Volcker), which would limit certain investment practices such as swaps and derivatives by banks, could be felt by non-financial companies. But will they really change how public boards operate?

I bring up those three parts of the financial overhaul legislation because they are being cited as the big stumbling blocks by Republicans, who this morning relented after blocking the bill from a floor vote for three days. And in the end those parts will either be modified or left out of the bill. Read the rest of this entry »

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Apr
20
2010

Goldman Sachs Suit May be Start of Derivative Reform

If you are a director on a public company that relies on the derivatives market (i.e. credit default swaps, collateralized debt obligations, synthetic CDOs) to manage risk or a financial services company that is a player in that market, your world is about to change drastically.

It probably is not too surprising that on the same day the SEC charged Goldman Sachs in a civil suit for fraud in structuring and marketing a synthetic CDO tied to subprime mortgages, the head of the Senate Agriculture Committee, which oversees futures trading, proposed regulation of the derivatives market. My point is that just as the Obama Administration didn’t give up on health care reform it will do the same with financial regulatory reform. It seems that whatever financial reform is finally passed, regulation of the derivatives market will be included.

As you all know, the Dodd financial regulatory reform bill, due to hit the Senate floor in the next couple of weeks, also calls for derivative transactions to go through a clearinghouse and be traded on an exchange while the SEC and the Commodities and Futures Trading Commission would oversee them. [Read my March 15 blog post.] Read the rest of this entry »

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Jan
20
2010

Q&A With Bill George: Corporate Leadership

As almost every U.S. public board continues a post-mortem on the financial crisis, many are looking for sobering answers from their own. And one director who has been making the rounds is Bill George, former Chair and CEO of Medtronic and director of Goldman Sachs and ExxonMobil who is a professor of management practice at Harvard Business School.

Bill George, Goldman Sachs director and HBS professor

Bill George, Goldman Sachs director and HBS professor

George, who was selected in 2002 as one of “The 25 Most Influential Business People of the Last 25 Years” by PBS Nightly News, has written and taught extensively on corporate leadership. In addition to his recent book, 7 Lessons for Leading in Crisis, Jossey-Bass (Aug. 2009), he has written Finding Your True North: A Personal Guide, Jossey-Bass (June 2008).

I came across a video of an interview he granted to The Economist on Jan. 6. In that 12-minute interview, he emphasized that the biggest lesson not learned by CEOs during the financial crisis is that they have not yet faced reality. He said, “this crisis has morphed into a jobs crisis, a health care crisis. A lot of leaders don’t want to face the problem.” While he acknowledged Goldman Sachs has become the lightning rod for the compensation debate, he did say there has to be some restraint.

I spoke with George following The Economist interview to get his take on what U.S. corporations should be doing to improve the leadership at their companies and what they should expect for this year. Read the rest of this entry »

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Dec
15
2009

Executive Compensation Reform Taking Some Baby Steps

The Obama Administration is using good old-fashioned peer pressure and more targeted disclosure to change the way executive compensation policies are carried out by public companies in the U.S. (How else can you explain that only days after the House narrowly approved an historic financial reform package (NYT, Dec. 12)  that the SEC is meeting to approve new compensation disclosure rules?)

As part of his peer pressure campaign, the President met with 12 of the CEOs from the largest U.S. financial institutions Monday morning to drive home the message that after these banks received help from the taxpayers, it’s time for them to give back. (Thanks to the tip from Pete Davis of Pete Davis Capital Investment Ideas)

“Now, I should note that around the table all the financial industry executives said they supported financial regulatory reform,” the President said in an official statement following the meeting. “The problem is there’s a big gap between what I’m hearing here in the White House and the activities of lobbyists on behalf of these institutions or associations of which they’re a member up on Capitol Hill.  I urged them to close that gap, and they assured me that they would make every effort to do so.”

Does Corporate Governance Matter?

That begs the question, “Should U.S. boards even care about corporate governance reform, especially any change to executive compensation policies, in the near future?” The short answer, as I see it, is a resounding YES! Based on discussion at The Conference Board Governance Center Fall Investor Summit, which focused on The Conference Board Task Force on Executive Compensation report, some of the issues investors are concerned about for 2010 are compensation committee composition, executive long term incentive plans and how executive bonuses will be paid. Read the rest of this entry »

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