High CEO Pay May Correlate With Lower Long-Term Stock Value, According To Two Studies, Huffington Post, December 31, 2009
But two recent studies suggest that lavish CEO compensation may in fact undermine shareholder wealth. [...] A separate study led by Harvard Law's Lucian Bebchuk investigated the relationship between future company performance and "CEO pay slice" (CPS) -- the percentage of the total compensation for the top five executives that is allocated to the CEO alone. Bebchuk and his colleagues found a negative relationship between a higher CEO share of the executive compensation pot and firm value.
What’s a Bailed-Out Banker Really Worth?, New York Times Magazine, December 29, 2009
Will Feinberg’s work become a model for changing that structure? [...] “The boards of these companies just don’t have an arm’s-length relationship with these executives,” says Lucian Bebchuk, a Harvard Law School expert on executive compensation who advised Feinberg. Board members are frequently executives or board members at other big corporations, Bebchuk explains, and therefore are likely to be steeped in the same entitlement culture.
Does Golden Pay for the CEOs Sink Stocks?, Wall Street Journal, December 26, 2009
Why does it seem that it's always Christmas in corporate boardrooms? And how can investors tell whether those glittering pay packages are worth the cost? …The first study, led by corporate-governance expert Lucian Bebchuk of Harvard Law School, looked at more than 2,000 companies to see what share of the total compensation earned by the top five executives went to the CEO. The researchers call this number—which averages about 35%—the "CEO pay slice."
Goldman bows to pressure over pay, Wall Street Journal, December 10, 2009
Goldman Sachs Group Inc., moving to defuse public outrage over its pay, said its top 30 executives will receive no cash bonuses for 2009 despite the firm's expected record profits…Lucian Bebchuk, a Harvard University law professor who focuses on corporate compensation, said the new bonus structure "is a very good way of going about tying compensation with long-term value."
Institutional Investors See Light at End of Downturn Tunnel, FindLaw, December 7, 2009
For the institutional investment fund managers and advisers attending the annual Global Shareholder Activism Conference in New York Dec. 3, it is both the best of times and the worst of times, a panel of corporate and business law experts agreed. [...] Prominent Harvard Law School professor Lucian Bebchuk added that investors suffer far more than corporate officers when stock prices go on a short-term profit roller-coaster ride.
Bebchuk et al. and the comp behind the crisis, The Deal Pipeline, December 7, 2009
There are straw men everywhere, and much of the debate over the origins of the financial crisis involves whacking them as vigorously as possible and declaring victory. In Monday's Financial Times, Lucian Bebchuk and two of his colleagues from Harvard Law School's corporate governance program, Alma Cohen and Holger Spamann, go after the straw man argument that most senior Wall Streeters at firms like Lehman Brothers Holdings Inc. and Bear Stearns Cos. were "largely wiped out" when their firms collapsed. "Many -- in the media, academia and the financial sector -- have used this account to dismiss the view that pay structures caused excessive risk-taking and that reforming such structures is important."
Legal expert: Hershey trust has no good options, The Deal Pipeline, December 6, 2009
From his office in Cambridge, Mass., Robert Sitkoff is keeping an eye on comings and goings in Hershey, Pa. A professor at Harvard Law School and a leading expert on trusts and estates, Sitkoff follows developments at the philanthropic Hershey Trust, which funds a school for low income children. The trust is the controlling stockholder in Hershey Co. -- by far its biggest asset -- and may soon push Hershey to make a white knight bid for Cadbury plc. Meanwhile, the U.K. confectioner confronts a hostile $16.3 billion stock and cash offer from Kraft Foods Inc. (Subscription required.)
Mending the Seams, Investment Professional, December 2009 As the global economy begins to find its way back from the brink following the financial crisis, the impetus is shifting from the day-to-day efforts to keep the system afloat to the long-term fixes that are needed to maintain and increase its stability and flexibility…The excessive fragmentation of the US regulatory structure bears a lot of responsibility for the financial crisis and makes it extremely difficult to cooperate internationally in any effective manner, asserts Hal Scott, the Nomura Professor of International Financial Systems at Harvard Law School and director of the CCMR (Committee on Capital Markets Regulation). And because corporations, Congress, and regulators all have a stake in maintaining the system the way it is, change is unlikely.
Quick pay, near-sighted execs, The Boston Globe, November 26, 2009 Until this week, most people believed that when two of the biggest financial firms in the country collapsed, their top executives went down with them. But a report released Sunday by the Program for Corporate Governance at Harvard Law School showed that the top five executives at Bear Stearns and at Lehman Brothers made a collective $1.4 billion and $1 billion, respectively, in cash bonuses and stock sales in the years preceding their firms’ failure. The executives, with the exception of former Bear Stearns CEO James E. Cayne, sold more stock shares between 2000 and 2007 than they held when the firms collapsed in 2008. The firms also paid the executives large cash bonuses based on high earnings and stock prices but never “clawed back’’ those bonuses when the firms failed. In the end , the executives fared a heck of a lot better than shareholders. Their near-sightedness was rewarded.
Harvard Study Faults CEO Pay, Harvard Crimson, November 25, 2009 Evidence pointing to excessive risk-taking by executives at investment banks Bear Stearns and Lehman Brothers continues to emerge more than a year after the two investment banks collapsed in 2008—this time from a paper released online this weekend by three Harvard Law School affiliates.
According to the study, the collapse of the two firms reflected not shortsightedness on the part of top executives, but rather compensation structures that shielded the executives from the consequences of the firms’ economic meltdown. Compensation structures of cash bonuses and equity options liquid regardless of the firm’s financial state led to sustained profits for these executives even after the financial collapse.
A healthy appetite for the right price, Financial Times, November 25, 2009 So, while a Kraft-Cadbury takeover faces cultural obstacles, a merger between Hershey and Cadbury could be encumbered by financial leverage. Shareholders have to weigh up the conflicting risks, and these are usually reflected in share prices during the offer period. Allowing shareholders to decide is not perfect but it is better than the alternatives. Research by Lucian Bebchuk, a Harvard professor, found that US companies with mechanisms to block takeovers underperform those that lack them.
"The evidence is that giving managers the power to decide is not in the long-term interests of shareholders. Markets can get it wrong, but are the best aggregators of judgment," he says.
What was really behind last year's market crash?, The Guardian, November 25, 2009 Economics, when you strip away the guff and the mathematical sophistry, is largely about incentives. At any time, these can get distorted in a particular market…In a 2009 paper, Lucian Bebchuk and Holger Spamann, of Harvard Law School, pointed out that giving a Wall Street CEO a big package of stock options amounts to giving them a heavily levered and one-sided bet on the value of the firm's assets. If the bank's investments do well, the stockholders, including the CEO, get to pocket virtually all the gains. But if the firm suffers a catastrophic loss, the equity holders quickly get wiped out, leaving the bondholders and other creditors to shoulder the bulk of the burden.
Foreign Suits Reward Plaintiffs That Discriminate Against U.S. Firms, Law.com, November 25, 2009 An op-ed by Professor Hal Scott: This year's outbreak of the H1N1 influenza has demonstrated that contagions know few boundaries and spread wherever they can find an available host. Likewise, because of their broad jurisdictional rules, U.S. courts can be easy targets for "forum shopping" by foreign plaintiffs seeking redress against American companies for torts they claim have taken place abroad.
Cadbury-Hershey: Too Much Risk for the Trust’s Kids?, Wall Street Journal, November 24, 2009 Milton Hershey had no children so he said he would make the “orphan boys of the United States” his heirs. To that end, the chocolatier founded the Milton Hershey School, which today serves 1,700 underprivileged children and has an endowment of $6.2 billion…On some levels, it sounds idyllic, but Robert Sitkoff, a Harvard University Law professor who focuses on trust law, says the Trust has been problematic not just for the Hershey Corp. but for the students at the school.
Lehman, Bear Officials Made $2.5 Billion, Study Says, Bloomberg, November 23, 2009 The top five officials at Lehman, which filed for bankruptcy in September 2008, received $1.03 billion in cash bonuses and proceeds from equity sales during the period, according to the report, “The Wages of Failure,” released today by Harvard Law School’s Program on Corporate Governance. Bear Stearns’s top executives made $1.46 billion in the years before JPMorgan Chase & Co. agreed to buy the firm in 2008.
Executives Kept Wealth as Firms Failed, Study Says, New York Times, November 22, 2009 But three professors at Harvard are disputing that logic in a new study, saying it is an urban myth that executives at Bear and Lehman were wiped out along with their companies. ... “There’s no question they would have done massively better had their firms not collapsed,” said Lucian Bebchuk, one of the study’s authors. “But the wealth of those top executives was hardly wiped out. The idea that they were devastated financially has kind of colored the picture people have about what payoffs they were facing.”
Lehman, Bear Executives Cashed Out Big, Wall Street Journal, November 22, 2009 Bear Stearns Cos. and Lehman Brothers Holdings Inc. executives cashed out nearly $2.5 billion from their firms between 2000 and 2008 even though the financial crisis hammered the shares they held, according to a study set to be released Monday.
The study's authors include Lucian Bebchuk, executive director of Harvard Law School's corporate-governance program and an adviser to Treasury Department official Kenneth Feinberg.
I'm doing 'God's work'. Meet Mr Goldman Sachs, Sunday Times, November 8, 2009 Blankfein goes on to say something equally audacious. We should welcome the return of titanic paydays at Goldman. ... Many disagree, arguing that in the new, flatter economic landscape, megabucks pay is no longer necessary. Lucian Bebchuk, professor of law, economics and finance at Harvard Law School, says: "These days, it’s easier for banks to keep their employees from being raided. The outside opportunities are less attractive now than in 2007."
Windfall Seen as Bank Bonuses Are Paid in Stock, New York Times, November 7, 2009 Even as Washington tries to rein in Wall Street pay, bankers are likely to make unusually large gains on the stock grants and options they received after shares in their companies fell sharply during the financial meltdown…The Treasury Department declined to comment when asked if these bank executives were being set up for windfalls. Lucian A. Bebchuk, a Harvard Law School professor who advised Treasury on pay rules, said, “What should we have done differently?” “It would be better if you could take the stock and somehow neutralize what the government did, but that’s really tricky,” he said. “If you have equity compensation, sometimes there are massive windfalls.”
A Costly Lesson in the Rule of ‘Loser Pays’, Financial Times, November 1, 2009 An op-ed by Professor John Coates: As Lord Justice Jackson reviews proposals to reform costs in the UK’s civil justice system by abolishing the “loser pays” rule in collective lawsuits, a current case before the US Supreme Court may provide a useful caution. Jones v. Harris Associates L.P., which will be argued this week, clearly demonstrates that lowering the “loser pays” barrier could have serious consequences.
Tort Lawyers Target Mutual Funds, Wall Street Journal, November 1, 2009 If you invest in mutual funds, you should be worried about a case argued today at the U.S. Supreme Court. The lawsuit aims at overturning the way investment managers of mutual funds are paid. The process has worked well and fairly for decades. If it is thrown out, every mutual-fund fee arrangement could end up being litigated in a federal court. This will not benefit the vast majority of investors…The mutual-fund market is competitive, and investors are sensitive to management fees. A 2007 study by Columbia Business School Dean Glenn Hubbard and Harvard Law Prof. John C. Coates found that a 10% increase in fees results in a drop of fund assets of up to 28%, after controlling for other relevant factors.
Fees Case Strikes at Heart of Mutual Funds, Wall Street Journal, October 30, 2009 The money-management fees that drive the mutual-fund industry are at stake Monday when the Supreme Court hears a case that asks how much is too much. A ruling for shareholders could push down fees that last year approached $100 billion by some estimates in the $10 trillion industry. …Harvard law professor Jesse Fried, a corporate-governance specialist, said a shareholder win would encourage plaintiff lawyers, "for their own selfish reasons, [to] monitor compensation structures in these firms," filing suits when pay looks out of line. "That will keep the compensation down," he said.
What's at Stake as the Supreme Court Examines Fund Fees, Morningstar, October 28, 2009 Morningstar's Ryan Leggio interviews professors John Coates of Harvard and Birdthistle of Chicago Kent about the possible outcomes of the Jones v Harris Supreme Court fund fee case, the level of competition in the fund industry, fund fee structures for institutional versus retail investors, the dispersion of fees for funds following the same index, and the effectiveness of fund boards.
Pay Czar Increased Base Pay at Firms, Wall Street Journal, October 28, 2009 Treasury Department pay czar Kenneth Feinberg last week announced sharp cuts in total compensation at the finance and auto companies under his control…"It's got to reflect his judgment that for competitive purposes he's got to keep these people," said Jesse Fried, a Harvard Law School professor who specializes in executive pay. He said cash bonuses, not cash salaries, were the root of the problem.
Who Gets Paid What, New York Times , October 21, 2009 For months, in the basement of the Treasury Department, Washington’s pay masters pushed one way, and the seven beleaguered giants of the bailout era pushed the other. ... By late July, the pay team, in consultation with two prominent compensation experts, Lucian A. Bebchuk and Kevin J. Murphy, devised a 20-page document laying out Mr. Feinberg’s demands for information.
Six degrees of reparation, MarketWatch, October 19, 2009 Many reforms have already taken place. Others are still under consideration on Capitol Hill and at the SEC. Harvard Law School Professor Lucian Bebchuk, a longtime advocate of strengthening shareholder rights, anticipates that much of the investor-friendly legislation on Capitol Hill will be approved. He contends that the proposed changes are part of a broad movement that is transforming shareholder-corporation relations in a post-financial crisis period.
In Merrill’s Failed Plan, Lessons for Pay Czar, The New York Times, October 8, 2009 It sounds like something Washington’s pay czar might propose to rein in runaway bonuses on Wall Street…“What we have here is something that was by and large good, and now the spotlight is on plans like this,” said Lucian A. Bebchuk, a professor at Harvard Law School who has studied compensation. “But there are elements that could be improved on.”
Fed aims to rein in bank pay abuses way below top execs, USA Today , October 7, 2009 A few years ago, rank-and-file loan officers were living it up, cruising around Houston in BMWs and Hummers and partying into the wee hours…But Lucian Bebchuk and Holger Spamann of Harvard Law School say that paying CEOs in stock gives them an incentive to take big risks: If the gamble works, "gains on the upside are unlimited." If it fails, the government, which guarantees deposits, often absorbs the worst of the losses.
Why Excessive Risk-Taking Is Not Unexpected, The New York Times: DealBook, October 5, 2009 An op-ed by Lecturer on Law Leo Strine, Jr.: Whatever the possible causes of the recent financial debacle, it seems clear that there is one cause that can be ruled out: that the directors and managers of the failed firms were unresponsive to investor demands to take measures to raise profits and increase stock prices. Rather, to the extent that the crisis is related to the relationship between stockholders and boards, the real concern seems to be that boards were warmly receptive to investor calls for them to pursue high returns through activities involving great risk and high leverage.
The year's biggest bailouts, Canada.com, October 4, 2009 It has been a year since the U.S. Congress created the US$700-billion Troubled Asset Relief Program, originally intended as a bailout just for the financial system. Emphasis might be placed on the word "Troubled," as TARP has been plagued by controversy since conception…"My understanding is that the administration would like to use it for another rainy day," says Harvard law professor Hal Scott, who also directs the independent Committee on Capital Markets Regulation. "I think that would be wise."
Introducing DealBook Dialogue, The New York Times: DealBook, October 2, 2009 Andrew Ross Sorkin and the DealBook staff invite readers to DealBook Dialogue, our first online round table. The topic is “Too Soon to Rethink? Assessing the Financial Crisis,” and the discussion will be moderated by the Deal Professor, Steven M. Davidoff. ... Beginning Monday, we will have a weeklong round table discussing this topic. ... The participants include: Lucian A. Bebchuk, the William J. Friedman and Alicia Townsend Friedman professor of law, economics and finance, and director of the program on corporate governance, at Harvard Law School.
Birthday For A Bailout, Forbes, October 2, 2009 As of Saturday, it will have been a year since the U.S. Congress created the $700 billion Troubled Asset Relief Program, originally intended as a bailout just for the financial system…"My understanding is that the administration would like to use it for another rainy day," says Harvard law professor Hal Scott, who also directs the independent Committee on Capital Markets Regulation. "I think that would be wise." If another big bank were on the brink of collapse, he says, there might no other alternative than to use TARP funds to keep it from pulling down the economy.
Banker-Pay Limits May Hurt Citigroup, Bank of America, Bloomberg, September 29, 2009 Citigroup Inc., Bank of America Corp. and smaller banks seeking to attract talent and regain ground on stronger peers may face a new obstacle from the global push to rein in executive pay…Investor advocates including Lucian Bebchuk, a professor of economics and finance at Harvard Law School, say guaranteed bonuses create “perverse incentives” for executives to take excessive risks.
Did Bankers’ Pay Add to This Mess?, The New York Times, September 26, 2009 Proposals to cap the compensation of bank C.E.O.’s have gained traction lately as a means of heading off another financial crisis…There is certainly some support for the broad assumptions behind this argument, notably in a working paper by Lucian A. Bebchuk and Holger Spamann, both professors at Harvard Law School, that began circulating earlier this year. It argues that compensation for bank C.E.O.’s is asymmetrical — that they often stand to make much more money when their banks succeed than they could lose if their banks fail.
New Hostility for an Old Delaware Antitakeover Law, Wall Street Journal: Deal Journal, September 24, 2009
A pickup in hostile deals and a weakening of the poison pill have brought into focus an overlooked Delaware law that has thwarted takeover attempts–but might be unconstitutional, according to a new study by a Harvard University professor. Delaware's M&A bar and judiciary are abuzz over a yet-unpublished 63-page paper by Guhan Subramanian, a professor at Harvard's law and business schools, that raises questions about constitutionality of Delaware's antitakeover statute–Section 203 of the state's corporate code. Covering more than half of all U.S. corporations, it is the most important antitakeover law in the country.
Profs. Sign Amicus Brief, The Harvard Crimson, September 24, 2009
Four Harvard Law School professors signed a statement in support of the defendant in a case regarding executive pay that will be heard by the Supreme Court next week. In the case, Jones et al. v. Harris Associates, several mutual fund investors charged that the fund had overpaid its advisors. The Seventh Circuit Court of Appeals in Chicago dismissed a full court rehearing of the lawsuit in May 2008. Law professors John C. Coates, Robert C. Clark, Allen Ferrell, and J. Mark Ramseyer signed an amicus brief earlier this month in support of the defendant, Harris Associates, along with more than 20 other corporate law and finance professors…"I didn't think the research I had worked on was presented fairly in the other briefs," Coates said. "I wanted to make sure the Supreme Court understood what the research out there really meant."
Obama Outlines Sweeping Financial Reforms in Wall Street Speech, DSNews.com, September 14, 2009
One year to the day after the colossal failure of Lehman Brothers Holdings Inc. sent markets into a tailspin and raised questions about the adequacy of U.S. financial regulations, President Barack Obama said Monday that the need for intense government involvement in the financial sector was "waning," but he still laid a blueprint for wide-reaching regulatory reforms…"The American regulatory structure is in total disarray and what has been proposed to fix it is partial, and even then there is heavy resistance," Hal Scott, Nomura Professor of International Financial Systems at Harvard Law School, told Reuters. "I don’t see us coming out with any significant change to the structure. The right rules and the wrong system is what we might end up with."
Financial Reform May Fail to Avert Another Lehman, Reuters, September 10, 2009
The collapse of Lehman Brothers a year ago has been likened to the 1994 crash that killed Formula One star Ayrton Senna, in the way it has spurred calls for root-and-branch review of risk in the financial sector… "The American regulatory structure is in total disarray and what has been proposed to fix it is partial, and even then there is heavy resistance," said Hal Scott, Nomura Professor on International Financial Systems at Harvard Law School. "I don't see us coming out with any significant change to the structure. The right rules and the wrong system is what we might end up with."
U.S. Turns up Heat on Basel Bank Reform, Reuters, September 3, 2009
"Basel, in my view, was a total failure. None of the Basel changes will lead to the right result. What we learnt from the crisis is that simple leverage ratios prevented more damage from being done than Basel was doing," said Hal Scott, a professor of international finance at Harvard Law School.
SEC Madoff Review Was A Scandal, Portfolio.com, September 2, 2009
Hal Scott, Nomura Professor of International Financial Systems at Harvard Law School, said the problems that the SEC had catching an out-and-out financial crook like Madoff were a reflection of an overly legalistic agency culture that is good at enforcing rules but not good at understanding complex business issues such as options trading. "They just didn't have the knowledge or resources to detect this," he said. "My takeaway is that they were understaffed. And not only were they understaffed…they lacked economic sophistication."
Sheila Bair Goes on the Attack Again, The Deal, September 1, 2009
... But as Judge Richard Posner argues in a detailed critique of the Treasury reform plan (you can find the two-part piece at the Harvard Law School Forum on Corporate Governance and Financial Regulation), the reform schemes that have been put forward by Treasury are undercut by the simplistic explanations for the cause of the crisis in the first place.
Alternatives to Sarkozy's pay caps, The Deal, August 27, 2009
Instead of basing executives' payoffs only on equity, or levered equity, compensation could be based on the value of a broader array of securities, as suggested by Harvard Law professor and compensation expert Lucian Bebchuk. In a research paper Bebchuck and Ph.D. candidate Holger Spamann write:
Instead of tying executives' compensation to the value of a specified percentage of the common shares, executives' compensation could be tied to the value of a specified percentage of the value of the common shares and the preferred shares.
Valeant CEO's Pay Package Draws Praise as a Model, Wall Street Journal, August 24, 2009
Pay experts say the deal gives Mr. Pearson incentives to boost long-term value for investors. For example, the 49-year-old CEO only gets to keep certain restricted shares if Valeant's share price increases at least 15% a year through February 2011. Mr. Pearson can't sell most restricted shares or exercised stock options for two years after they vest. "It goes a substantial distance toward addressing my concerns about executive-pay arrangements," says Lucian Bebchuk, a Harvard law professor and frequent pay critic.
Pay Regulation is Not the Best Way to Address Moral Hazard, Financial Times, August 17, 2009
Sir, Lucian Bebchuk has strongly endorsed the House of Representatives' decision to regulate the pay structure of the entire financial sector ("Regulate financial pay to reduce risk-taking", August 4). Financial institutions are special, argues Prof Bebchuk, because they impose costs on taxpayers that they do not internalise. This specialness warrants a broader role for the government in setting chief executive officers’ pay in financial institutions.
Should Executive Pay Be Regulated?, TIME, August 10, 2009
When I run this example by Lucian Bebchuk, a Harvard Law School professor who has supplied much of the intellectual firepower for the current pay-regulation campaign, he has a ready retort. "When they run out of good, substantive arguments, they come to the argument of unintended consequences," he says of pay-regulation opponents. "We have seen the consequences of the lack of intervention in the last 10 years. We have lived with that experiment."
Their Gamble, Everyone's Money, The New York Times, August 8, 2009
Lucian Bebchuk and Holger Spamann, experts in securities law at Harvard Law School, suggested that bankers' pay could be linked to other prudential rules, like capital requirements. For instance, if bankers' pay was designed to rise when the value of the assets did but not to fall commensurately when the assets went sour, they might be tempted to take on more risk than they should. If regulators determined that was the case, they might require banks to set aside more capital, just as they must when they make risky loans.
Congress Tackles Wall Street Pay, WNYC Radio Interview with Lucian Bebchuk, August 6, 2009
Congress, Lobbyists Debate Meaning of Risk, MarketWatch: Capitol Report, August 6, 2009
Harvard Law School professor Lucian Bebchuk argues in favor of government intervention in pay practices at financial institutions, in part, because, unlike other failures in other industries, the sudden insolvency of mega-banks results in high bailout costs for taxpayers. "The government has an interest in how pay structures have an impact on risk-taking of people at financial institutions because of the costs that such risk taking has on taxpayers," Bebchuk said.
Lucian Bebchuk on pay and governance, The Deal, August 4, 2009
The marriage of shareholder governance and the belief that excessive compensation is the root of all evil is an uneasy one, as Harvard Law School's Lucian Bebchuk reveals in a column in Tuesday's Financial Times. Bebchuk makes the argument that given finance's essential systemic role, the government has every right to set compensation, skirting the usual governance powers of the board, much as regulators have the right and responsibility to limit imprudent behavior. By making this argument, Bebchuk is thus trying to draw a line between, say, the big banks and the rest of corporate America.
House Backs Greater Say On Pay by Shareholders, Washington Post, August 1, 2009
"The bill does not look deliberately and consciously at the amount of compensation, only the incentives the pay structures produce," said Lucian Bebchuk, director of the program on Corporate Governance at Harvard Law School. "With respect to the shareholder 'say on pay' and bolstering on compensation committee independence, these are useful steps . . . but their effectiveness is going to be limited."
Floyd Norris on compensation, the crisis, The Deal, July 31, 2009
... In one column, Norris has managed to poke a stick at commentators (never named) as diverse as Lucian Bebchuk, Barney Frank, Matt Taibbi, the Times' own Gretchen Morgenson and the paper's own editorial board (of which he was once a member). Not a bad day's work. He'll undoubtedly be widely pilloried for it.
Should You Invest In Toxic Assets?, The Wall Street Journal, July 29, 2009
"For now, the bulk of toxic assets are not going to be in play," Harvard law professor Lucian Bebchuk, one of the intellectual architects of PPIP, told me. Changes to accounting rules and government stress tests, have taken off some of the pressure off banks, so Professor Bebchuk says banks are not as motivated to sell their toxic assets as they were when PPIP was set up in March. "For many types of toxic assets, even if the banks can get a price that's fair, if it's at a discount to face value they don't have an incentive to do it," he says.
Congress urged to curb insurers' risky behavior, Reuters, July 28, 2009
A large U.S. consumer group urged Congress on Tuesday to clamp down on insurers' risky practices after last year's near collapse of AIG due to its foray into exotic derivative instruments… Hal Scott, a professor of international finance at Harvard Law School, urged creation of an optional federal charter for insurers, so that insurers could opt to be overseen by the federal government.
Of Banks and Bonuses, The New York Times, July 26, 2009
An insightful reform recommended by Lucian Bebchuk, a Harvard Law professor and director of the law school's Program on Corporate Governance, would require that executive compensation be tied not only to the company's stock performance, but also to the long-term value of the firm's other securities, like bonds. That would encourage executives to be more conservative about using borrowed money to juice returns to capital, because it would expose them to the losses that leverage can exert on all the firm's investors.
The Art of Snatching Defeat Out of Victory - Part II, Daily Kos, July 23, 2009
As Harvard Law School professor Lucian Bebchuk has noticed (http://blogs.wsj.com/...), "a month after the PPIP program was announced, under pressure from banks and Congress, the U.S. Financial Accounting Standards Board watered down accounting rules and made it easier for banks not to mark down the value of toxic assets. For many toxic assets whose fundamental value fell below face value, banks may avoid recognizing the loss as long as they don’t sell the assets. ..."
Tax Changes Urged for Mutual Funds, Wall Street Journal Online, July 21, 2009
The U.S. system for taxing mutual funds needs to change to keep the domestic-fund industry competitive with Europe, according to a person who consults on funds to the Securities and Exchange Commission. John C. Coates, a professor at Harvard Law School, has written a set of recommendations on taxing and regulating mutual funds that says some features of the U.S. industry are anticompetitive. In a report released by the Committee on Capital Markets Regulation, an independent, nonpartisan research organization, Mr. Coates proposes several changes.
Panel Probing Financial Crisis Has Wall Street Ties, The Wall Street Journal, July 18, 2009
Mr. Georgiou is described as "of counsel" by his law firm, and functions as a liaison with institutional investors. He has worked closely with the commission's chairman, former California Treasurer Phil Angelides. Mr. Georgiou also is a business owner and an adviser to a Harvard Law School corporate-governance program. He had a long career in state government in California in addition to his work with plaintiff law firms, and has litigated on behalf of farm workers.
Democrat Appointments to Financial Crisis Inquiry Commission, The Wall Street Journal: Real Time Economics, July 15, 2009
Byron Georgiou, who is a Las Vegas-based businessman and attorney. Mr. Georgiou serves on the advisory board of the Harvard Law School Program on Corporate Governance which hosts the leading blog on corporate governance and financial regulation. Mr. Georgiou is the President of Georgiou Enterprises, a company with a wide range of business interests from international carbon emission reductions projects to residential and commercial real estate and golf course management and development.
California's Angelides to Lead Financial Crisis Probe, Bloomberg, July 15, 2009
... Democratic leaders also appointed Brooksley Born, former chairman of the Commodity Futures Trading Commission; former U.S. Senator Bob Graham of Florida; John Thompson, chairman of Cupertino, California-based Symantec Corp.; Heather Murren, a retired managing director at Merrill Lynch & Co.; and Byron Georgiou, a Las Vegas lawyer and member of the advisory board of Harvard Law School's corporate governance program.
Where Do We Go from Here? Part II, The Atlantic: A Failure of Capitalism, July 14, 2009
The first proposal, in the form that I will consider, is the brainchild of Lucian Bebchuk, a very able lawyer and economist who teaches at Harvard Law School. Bebchuk is a leading critic of overcompensation of CEOs, but his proposal concerning the compensation of financial executives is distinct, and even (as I'll argue) inconsistent with his general position on overcompensation.
With Big Profit, Goldman Sees Big Payday Ahead, The New York Times, July 14, 2009
Another concern is that the blowout profits might encourage rivals to try to match Goldman in the markets so they, too, can return to paying hefty bonuses. Wall Street's bonus culture is widely seen as having encouraged the excessive risk-taking that set off the financial crisis. "I find this disconcerting," said Lucian A. Bebchuk, a Harvard law professor. "My main concern is that it seems to be a return to some of the flawed short-term compensation structures that played an important role in the run-up to the financial crisis."
Altering Incentives in the Financial Industry, Seeking Alpha, July 1, 2009
Lucian Bebchuk and Holger Spamann of the Harvard Law School make the big point in an excellent recent paper. Its focus is on the incentives affecting management. These are hugely important. Still more important, however, is why a limited liability bank, run in the interests of shareholders, is so risky.
Fixing Fat Cats, Business Spectator, June 27, 2009
In an influential book, Bebchuk and Fried (2004) argued that executive compensation is set by managers themselves to maximise their own pay, rather than by boards on behalf of shareholders. Indeed, many commentators argue that executives' pay schemes were major contributors to the financial crisis, encouraging them to take on too much risk and manage their company for short-term profit.
On Executive Pay, Simpler Is Better, Harvard Business Review, June 25, 2009
... In a separate post in this debate, Lucian Bebchuk and Jesse Fried offer a complex timing scheme of vesting and cashing stock options. They're trying to retain the intense incentives of stock options while preventing gamesmanship. It's hard to see boards going along, once the outcry over executive compensation fades.
Perilous Incentives, Business Spectator, June 24, 2009
Lucian Bebchuk and Holger Spamann of the Harvard Law School make the big point in an excellent recent paper. Its focus is on the incentives affecting management. These are hugely important. Still more important, however, is why a limited liability bank, run in the interests of shareholders, is so risky.
USC Marshall Professor Testifies in D.C., USC News, June 19, 2009
The Treasury Department's counselor Gene Sperling, Harvard Law School's Lucian Bebchuk and Nell Minnow of The Corporate Library were among the panelists who also testified in front of the committee, which is chaired by Massachusetts Rep. Barney Frank, who's seeking new laws on compensation structures.
Letter From America: Critic of High C.E.O. Pay Is Vindicated, The New York Times, June 18, 2009
... But if you’re Lucian Bebchuk, professor of law, economics and finance at the Harvard Law School, and a man recently described in The New York Times as waging a "crusade" against the way corporate wages are paid, the moral question is secondary to a practical one. "I’m not a crusader by nature," Mr. Bebchuk, who was born in Poland and raised in Israel, said in a phone interview this week. "I got into this subject by intellectual interest." It was an interest, moreover, that made Mr. Bebchuk something of a prophet a few years ago, in 2004 to be exact, when he and Jesse Fried published a book titled "Pay Without Performance."
Risk vs. Executive Reward, The Wall Street Journal, June 15, 2009
... the recent papers highlight how difficult it may be to limit incentives for risk-taking. Harvard Law School professor Lucian A. Bebchuk says financial-services companies' reliance on large amounts of borrowed money offers executives the prospect of big gains while encouraging them to downplay potential risks. Mr. Bebchuk, who directs Harvard's corporate-governance program, worries that federal officials are pushing banks to adopt practices, such as granting restricted stock and giving shareholders an advisory vote on executive pay, that may make the problem worse. That is because many banks' share prices are now so low that shareholders, with little to lose, may support executives' taking big risks. He recommends tying executive pay to the performance of a company's bonds and preferred stock, in addition to its common stock, and basing bonuses on measures other than earnings per share.
Outlook dim for adviser SRO in financial-reform proposal, Investment News, June 14, 2009
Indeed, the administration is "being pushed away from any significant regulatory change by the forces that have opposed reform," said Hal Scott, a law professor at Harvard Law School in Cambridge, Mass., who is director of the Committee on Capital Markets Regulation. "Those forces are the industry, Congress and the existing regulators," who all want to maintain the status quo, he said.
Geithner's Plan on Pay Falls Short, The New York Times, June 13, 2009
On Wednesday, the Treasury secretary held a roundtable discussion with a group of about 20 government officials and outside experts; the subject was executive compensation. Kenneth R. Feinberg, the Treasury Department’s new "comp czar," was there, as was Mary Schapiro, the new chairman of the Securities and Exchange Commission; Daniel K. Tarullo, the newest Federal Reserve governor; and Lucien Bebchuk, the Harvard Law School professor who has turned his academic interest in executive compensation into a crusade.
Executive Compensation Revisited, Seeking Alpha, June 12, 2009
... So, I decided to call on some reinforcements. Lucian Bebchuk, a leading researcher of executive compensation (book; important paper discussed here), and Holger Spamann have a new paper called "Regulating Bankers' Pay" that discusses precisely this issue. They conclude not only that regulation of banks' executive compensation would be a good thing, but that it may actually be better than the traditional regulation of banks' activities.
House Panel Clashes Over Pay Restrictions, The New York Times, June 12, 2009
Lucian A. Bebchuk, a Harvard law professor who testified at the hearing, had similar criticisms about the banking industry in particular. In a written version of his opening statement to the committee, he argued that banks’ lopsided pay structure had encouraged dangerous risk-taking. "Because top bank executives were paid with shares of a bank holding company or options on such shares, and both banks and bank holding companies obtained capital from debtholders, executives faced asymmetric payoffs, expecting to benefit more from large gains than to lose from large losses of a similar magnitude."
Gene Sperling Opening Statement Before the House of Representatives, News Blaze, June 11, 2009
... Yet, as Harvard Professor Lucian Bebchuk has written, compensation packages based on restricted stock are not a fool-proof means of ensuring alignment with long-term value, as such pay structures can still incentivize well-timed strategies to manipulate the value of common equity or take "heads I win a lot, tails I lose a little" bets depending on the capital structure and degree of leverage of the firm.
New Pay Guidelines Raise Questions, Wall Street Journal, June 10, 2009
Treating bank executives' pay in a vacuum will not cure the problem of excessive risk-taking – and may prove counterproductive, says Lucian A. Bebchuk, a Harvard Law School professor and director of its corporate-governance program. He says the highly levered structure of financial-services firms gives executives the possibility for big gains, without much risk. Mr. Bebchuk said encouraging grants of restricted stock and shareholder votes on compensation packages may exacerbate the problem.
Business As Usual On Executive Pay?, FinancialTimes, June 9, 2009
According to Lucian Bebchuk, director of the corporate governance programme at Harvard Law School and co-author of Pay without Performance: The Unfulfilled Promise of Executive Compensation, individual directors are also concerned about suffering damage to their own personal standing if they agree pay awards that subsequently attract criticism. For example, following the controversy over the pension awarded to Sir Fred Goodwin at Royal Bank of Scotland, Sir Tom McKillop, the former RBS chairman who helped to negotiate it, felt obliged to step down as non-executive director at BP.
Finance Reforms Pared Back, Wall Street Journal Online, June 9, 2009
The Obama administration is backing away from seeking a major reduction in the number of agencies overseeing financial markets, people familiar with the matter say, suggesting that the current alphabet-soup of regulators will remain mostly intact… "It's not only an opportunity, they are avoiding a necessity," says Hal Scott, a professor at Harvard Law School. "I understand all these political forces -- they've been obstructing necessary change for decades. But we are in a very serious situation. The regulatory system has demonstrated its inability to function, and I really think its incumbent on somebody to do what's right."
Restraints on Executive Pay, The Economist, May 30, 2009
What went wrong? With hindsight, it is clear that the industry’s leaders collectively failed to understand the nature of the risks their firms were taking on. But Lucian Bebchuk, a pay expert at Harvard Law School, sees another problem. He points out that equity-based bonus plans align bankers’ interests only with those of shareholders. This encourages them to make big bets that could dramatically increase the value of a bank’s shares. But if those bets go wrong, then it is not just shareholders who end up shouldering the catastrophic losses; they are borne by unsuspecting bondholders and taxpayers too. To solve this problem, Mr Bebchuk recommends linking bankers’ fortunes not just to share prices, but also to, say, the price of credit-default swaps on a bank’s bonds.
Reshaping Financial Oversight, Wall Street Journal Online, May 28, 2009
The worst financial crisis since the Great Depression is about to prompt the most far-reaching renovation of the rules and institutions that regulate finance since the 1930s. And the change won't wait for the economy to recover. The Obama administration is rushing to finish a proposal for reshaping financial regulation and wants Congress to act on it by the fall… But how much power to give the Fed? Here's where it gets interesting. In the past week, two private-sector groups emphatically said the Fed should be the sole financial stability regulator. The groups are the Committee on Capital Markets Regulation, a collection of Wall Street executives and academics led by Harvard law professor Hal Scott, and the Squam Lake Group, 15 academics convened by Dartmouth finance professor Kenneth French. Neither could agree on what the Fed should do beyond, as the Squam Lake Group put it, "gathering, analyzing and reporting information about significant interactions between and risks among financial institutions."
Re-regulation Will Fail to Curb Bankers' Worst Excesses, FinancialTimes.com, May 27, 2009
... Then there is the case of the remarkably unstressful stress tests, which showed that US banks needed no more than $75bn of fresh equity. Yet the methodology in the stress test report is open to question. Lucian Bebchuk of Harvard University points out that the report's estimate of $600bn aggregate losses takes into account losses arising from non-payment, but not discounts related to mark-to-market values.
RPT-Novel Ideas Surface For U.S. Banks' Executive Pay, Reuters, May 26, 2009
Lucian Bebchuk, a professor at Harvard Law School, and colleague Holger Spamann argue that a banker's pay should be tied to all of the bank's assets, not just to equity, which they say accounts for only about 5 percent of overall assets. "Banking regulators should monitor executive pay in banks, and prevent arrangements that incentivize top bankers to focus only on the bank's equity, which ... can gain through strategies that are detrimental to the other 95 percent," they write in a forthcoming paper. Bebchuk and Spamann suggest top bankers should be paid on a "broader set of claims, including deposits and junior debt," which would prod them "to place much greater weight on possible losses in their choice of strategy."
AIG Trustees Should Answer to Taxpayers, Not Fed, Towns Says, Bloomberg.com, May 12, 2009
A House panel plans to ask trustees assigned to safeguard the U.S. government's $182.5 billion investment in American International Group Inc. whether their supervision by the Federal Reserve Bank of New York serves taxpayers’ interests…"The people appointed are long-time Fed players," said Mark Roe, a professor at Harvard Law School in Cambridge, Massachusetts, who has written a book on corporate governance. "They’re likely to take signals from the Fed anyway, even if not obligated to."
Funds Say Ready for US Toxic Asset Buys in June, Reuters, May 8, 2009
Harvard Law School professor Lucien Bebchuk said simply restarting frozen markets for troubled assets could lift their valuations above current fire-sale levels, but banks will still need capital injections. "The troubled assets plan will nicely complement the program for recapitalizing banks by providing a clearer picture of which banks are insolvent or undercapitalized, thus making it easier to target capital injections to banks most in need of capital," he said.
Bernanke Urges Revising Gramm-Leach-Bliley Law, American Banker, May 8, 2009
The tests' whole point was to encourage banks to build cushions against future losses, but Hal Scott, the director of Harvard Law School's program on international financial systems, said more capital and regulation do not result in less risk. "It's fair to say that capital requirements have proven completely inadequate," he said. "The most intensive and detailed area of regulation — capital — has not worked. More regulation therefore does not necessarily translate into less systemic risk."
Retail Investors in Buying Mood Despite Downturn , Investment News, May 7, 2009
... Principal-protected mutual funds are also becoming popular, said Allen Ferrell, Harvard Greenfield Professor of Securities Law at Harvard Law School in Cambridge, Mass. "But these products promise to return the amount invested over a 3-, 5- or 7-year time period in nominal terms," he said. "Particularly in an environment where inflation is possible, what is the value of that guarantee?"
Early Days of Chrysler Bankruptcy Will Define What 'Speedy' Can Be, Detroit News, May 4, 2009
"This could get messy," Mark Roe, a Harvard Law professor, wrote last week in the Wall Street Journal. "First off, in a bankruptcy any single creditor is entitled to get the liquidation value of its claim. So any creditor can assert that what it would get if Chrysler sold its factories quickly would be more than the 32 cents per dollar that Treasury had guaranteed Chrysler's secured creditors before the government deal fell apart this week. Not all of those who've already raised their hands in favor prior to bankruptcy, especially the smaller investors, will still be raising their hands inside Chapter 11. They can change their mind, and some just didn't want any negative publicity before the bankruptcy."
Changing Course, The Economist , April 30, 2009
When banks have only thin slices of equity, or when share prices have dropped precipitously, shareholders’ propensity to gamble goes up even more. A new paper from Lucian Bebchuk and Holger Spamann of Harvard Law School suggests that bankers’ pay be tied not just to equity but to other bits of the bank’s capital structure, such as preferred shares and bonds. Giving shareholders more control makes sense, but like every other solution to this wretched crisis, it creates problems of its own.
The Quest for Global Governance Standards, Directorship, April 23, 2009
In the search for metrics to assess governance of public companies, Harvard Law School Professor Lucian Bebchuk and Hebrew University Professor Assaf Hamdani discuss the major shortcomings of current methods plaguing researchers on The Harvard Law School Forum on Corporate Governance and Financial Regulation blog.
Welcome to Tax-Dodge City, USA, Guardian, April 13, 2009
Mark Roe, a professor at Harvard Law School, says Delaware has a huge incentive to make company-friendly laws to lure multinationals which are not necessarily in the interests of either shareholders or the public. "Delaware understands that the principal actors in deciding where to incorporate are the managers of companies and insiders," says Roe. The risk, he says, is "they come up with law as friendly to insiders as it can be while still being credible".
New GM CEO Doesn’t Rule Out Bankruptcy, Detroit News, April 1, 2009
... But Harvard law professor Mark Roe, a top bankruptcy expert, said it would likely take significantly longer than the 30-day bankruptcy procedure described by the Obama administration for GM to deal with its many brands and dealers, as well as liabilities to the UAW and bondholders, even under a Section 363 procedure. "If a company went into bankruptcy and its only problem was bond debt, 30 days might be pushing it, but that's thinkable," he said. "But if it's more complicated -- and GM is more complicated -- it's hard to do that unless you do it without addressing the structural problems."
Target’s Challenge, The New York Times: DealBook, March 31, 2009
... In case you are wondering, only Pershing has nominated a fifth director to take office if the resolution does not pass and Target’s board remains at 13 members. Pershing Square’s fifth nominee is Ronald Gilson, a professor of law at Stanford and Columbia. Mr. Gilson is following in the shoes of Lucian Bebchuk, the Harvard professor that Carl Icahn nominated for the Yahoo board last year.
Obama Ratchets up Pressure on GM, Chrysler, Christian Science Monitor, March 30, 2009
When President Obama issued his stark warning about bankruptcy Monday, he was talking about General Motors and Chrysler – but his message was targeted at a much broader audience…"It does put pressure on them, because they have been thinking that when push comes to shove, the government will bail out General Motors," said Mark Roe, a bankruptcy expert at Harvard Law School. Now, "it looks like Obama and the auto task force are laying down a marker."
How Toxic Are They?, TIME, March 26, 2009
"One value of doing this is it would clarify which banks are and which banks aren't undercapitalized," says Harvard Law professor Lucian Bebchuk, whose September proposal for toxic-asset purchases by competing investors seems to have provided a template for Treasury's plan. "It's reasonable to expect that restarting the market for troubled assets will lead us to discover that some banks are in a healthy position and will make it absolutely clear that some banks are in an unacceptable position."
The Public-Private Partnership Investment Program (PPIP) – Will It Work?, RGE Monitor, March 25, 2009
The theoretical foundations of Geithner’s plan are provided by Lucian Bebchuk from Harvard University among others. He explains that "if the underlying market failure is at least partly one of liquidity, an effective plan for a public-private partnership in buying troubled assets can be designed. The key is to have competition at two levels. First, at the level of buying troubled assets, the government’s program should focus on establishing many competing funds that are privately managed and partly funded with private capital--and not creating one, large "aggregator bank"-- funded with public and private capital and engaging in purchasing troubled assets. Second, several potential fund managers should compete for government capital under a market mechanism resulting in maximum participation of private capital and minimum costs to taxpayers."
Column: The Bluff on Bonus, The Financial Express, March 25, 2009
The public furor has brought much needed public attention to the executive compensation racket that went out-of-control years before the crisis and stretches far beyond the financial sector. Harvard professors Lucian Bebchuk and Jesse Fried had already documented the phenomenon in their 2004 bestseller, Pay without Performance. In 1991 the average large-company CEO received 140 times the pay of an average worker; by 2003 the multiple jumped to 500. A few popular myths have aided them well in accomplishing this without much public outrage till of late.
Rule by "Hedge Fund Democrats", Institute for Public Accuracy, March 24, 2009
Lucian Bebchuk, a Harvard Law professor and centrist, now proposes Chapter 11 bankruptcy for AIG to stop the bleeding on its $1.2 trillion in credit default swaps. Paul Krugman, Nobel economist, argues for nationalizing the zombie banks to get them to shed their toxic assets and jump-start their lending activities for productive investment in real economic activity.
Some Experts Say Rescue Program Might Not Work, Washtington Post, March 24, 2009
There was also widespread agreement that the Obama administration, like its predecessor, has not done enough to explain its choice of a fraught and controversial approach. "I think we suffer from the lack of a fuller explanation. I think they would inspire much more confidence if they explained their rationale," said Hal Scott, a Harvard Law School professor who specializes in financial systems. Scott and others favor alternative approaches to restoring the health of the banking system.
Some AIG (AIG) Employees Start to Return Bonuses; Death Threats Sent, Forexhound, March 20, 2009
Eleven employees who received retention bonuses of at least $1 million each have left AIG, according to the New York attorney general's office. (AIG can't even do retention bonuses right) "Regardless of whether it's important to retain employees, it is clear that the AIG bonuses did not serve a retention purpose and couldn't be justified as such," said Lucian Bebchuk, an executive-compensation expert at Harvard Law School. "A payment that's not conditional on staying doesn't really provide an incentive to stick around."
AIG CEO, Employees Get Death Threats Over Bonuses, Daily Herald, March 18, 2009
Eleven employees who received bonuses of at least $1 million each have left AIG, according to the New York attorney general's office. "Regardless of whether it's important to retain employees, it is clear that the AIG bonuses did not serve a retention purpose and couldn't be justified as such," said Lucian Bebchuk, an executive-compensation expert at Harvard Law School. "A payment that's not conditional on staying doesn't really provide an incentive to stick around."
Paying Workers More to Fix Their Own Mess, New York Times, March 18, 2009
The bonus scandal offers Mr. Obama and Mr. Bernanke a chance to get ahead of the curve — so long as they come up with changes that extend well beyond A.I.G. The starting point would be a rigorous analysis of whether the government can take specific steps to restrain pay. Some thoughtful management experts think any such efforts are doomed to fail. Others are more optimistic. "There are ways to do it," says Lucian Bebchuk, a Harvard Law professor.
Once Paid, AIG Bonuses will be Hard to Recover, The San Francisco Chronicle: SFGate, March 17, 2009
"The dismal performance of the financial products unit was apparent in the earlier part of 2008," says Lucian Bebchuk, Director of the program on Corporate Governance at Harvard Law School. "Similarly, it is hard to justify the bonuses as essential for retention, as they were not made contingent on executives' staying with the company. The executives who recently received the bonus payments are now free to leave AIG with the bonuses in their pockets," Bebchuk adds.
Bernanke's Vision for Change, Washington Post, March 11, 2009
Indeed, few of the policy ideas he offered were new. The accounting rule changes, for example, are "on everybody's list," said Hal S. Scott, a Harvard Law professor and director of the Committee on Capital Markets Regulation, a group of academics and finance industry leaders. "Our committee is looking at it. Every other group I know that is looking at the financial crisis is looking at it."
TALF: How To Make It Better, WSJ online, March 9, 2009
A few weeks ago, we blogged about a discussion paper written by Harvard Law School Professor Lucian Bebchuk that contained some concrete proposals on how the U.S. government could partner with private equity firms to invest in toxic assets. Shortly thereafter, The Wall Street Journal reported on some preliminary details of the Treasury’s plans for those programs, which appear to be quite similar to what Bebchuk suggests. We talked to Bebchuk about his ideas, which he says could also be applied to TALF - Term Asset-Backed Securities Loan Facility.
Should CEO Pay Restrictions Spread to All Corporations?, The Christian Science Monitor, March 9, 2009
... Another academic, Harvard Law School's Lucian Bebchuk, suspects public outrage makes the prospects of reform "better than they have been for a long time." His reform preference would be "rules and regulations that strengthen shareholder rights and make boards more accountable to shareholders." It used to be that CEO pay was a drop in the bucket compared with the size of big companies – "just" 42 times the pay of ordinary workers in 1980. But Professor Bebchuk found that during the period 2001 to 2003 the earnings of the top five executives at a set of large firms amounted to nearly 10 percent of corporate earnings. That is significant to shareholders.
Revisiting the Proxy Contest, The New York Times: DealBook, March 2, 2009
... This is why the staggered board is so controversial. A company with a staggered board has only one-third of its directors up for election in any given year. By requiring a hostile bidder to run two proxy contests in two years to force a transaction, the staggered board appears to discourage bidding, a deterrent that is not compensated for by higher share premiums. Lucian A. Bebchuk, John C. Coates and Guhan Subramanian of Harvard Law School have conducted empirical research on bids from 1996 to 2000 that confirms this finding.
How CEOs Steal From Your 401(k), MSN Money, March 2, 2009
Pedrotty's comments may come off as union rhetoric, but Harvard law professor Lucian Bebchuk puts real dollars behind the claim. The top five officers at major U.S. public companies extracted roughly a half-trillion dollars in pay, stock and perks over the past 10 years, pocketing about 9% of average corporate profits.
UPDATE 3-US FDIC Taps Private Market to Sell Bank Assets, Reuters, February 26, 2009
"This method might be appropriate for the FDIC's effort to sell assets it has come to own, but it would not be a good means of implementing Geithner's vision of restarting the market for banks' troubled assets," said Lucian Bebchuk, a Harvard professor who recently wrote a paper on how to make the federal financial bailout plan work.
An Army Of Bad Banks, Wall Street Journal, February 24, 2009
Lucian Bebchuk, a professor at Harvard Law School, tackles both at once in a recent discussion paper, which can be downloaded here. Bebchuk’s main argument is that one aggregator bank, or bad bank, won’t work. Instead, he suggests setting up a veritable army of such vehicles, with each bidding against all the others for troubled assets.
The Benefits of GM Bankruptcy, Wall Street Journal, February 23, 2009
As General Motors passes around an ever-larger tin cup to Washington lawmakers, people are pondering the nuclear option: letting GM file to reorganize under Chapter 11 of the U.S. Bankruptcy Code. Law professor Mark Roe at Harvard Law School says it is a route that looks more and more sensible.
Wall Street Reform Next Up For Dems, Chicago Tribune, February 23, 2009
Hal Scott, a professor at Harvard Law School and the director of the Committee on Capital
Markets Regulation, said that the near-collapse of Bear Stearns demonstrated why a new
regulatory scheme was needed. "We had multiple agencies trying to deal with the problem. The Securities and Exchange
Commission had supervisory authority over Bear Stearns, but it was the Federal Reserve that
ultimately had to decide whether to let it fail," Scott said.
What are the Specifics?, The Associated Press, February 22, 2009
Lucian Bebchuk, professor of law, economics and finance at Harvard Law School, favors a plan that gives investors capital and the prospect of profit. The basics of his approach work like this: The Treasury Department could establish say 25 funds with capital of $10 billion each, funded by the government's Troubled Asset Relief Program, or TARP, as well as borrowed funds from the Federal Reserve. At the helm of those funds are private managers, who have no conflicts of interest and will be able to get a cut of the profits.
Whom Do Corporate Boards Represent?, New York Times, February 20, 2009
In their well-researched and cogently argued "Pay Without Performance: The Unfulfilled Promise of Executive Compensation" (Harvard University Press, 2004), Lucian A. Bebchuk and Jesse M. Fried, Harvard and Berkeley law professors, respectively, and experts on corporate governance, take straight aim at the economists’ model. Anyone interested in this topic could not do better than reading this widely praised book, along with the economist Michael S. Weisbach’s thoughtful review of it, published in the Journal of Economic Literature.
US Public-Private Fund, Financial Times: Lex, February 20, 2009
... Asset heterogeneity and vast value uncertainty complicated bringing together banks hoping to resist further losses with the government intent on taxpayer protection. The key, suggests Harvard professor Lucian Bebchuk, is to have a significant number of private funds dedicated to buying and managing assets, rather than one large fund. With low-cost, non-recourse public funding, multiple buyers would create price tension, while retaining a strong incentive not to overpay.
Executive Compensation Controversy Creates More Unintended Consequences, Seeking Alpha, February 19, 2009
... Corporate governance expert, Lucian Bebchuk, writes of the risks in the way Dodd’s amendments restrict variable compensation to stock awards. A list of similar examples of problems would go on and on. The bottom line is that companies need flexibility in setting compensation. Federal regulation of compensation is a pathway littered with unintended consequences, and has there ever been a "good" unintended consequence?
Creating Incentives to Buy Banks' Bad Assets, Associated Press, February 16, 2009
Lucian Bebchuk, professor of law, economics and finance at Harvard Law School, favors a plan that gives investors capital and the prospect of profit. The basics of his approach work like this: The Treasury Department could establish, say, 25 funds with capital of $10 billion each, funded by the government's Troubled Asset Relief Program, or TARP, as well as borrowed funds from the Federal Reserve. At the helm of those funds are private managers, who have no conflicts of interest and will be able to get a cut of the profits. They are given a mandate to use the money to buy the troubled assets, or they can park them in Treasury securities. But the only way they make money is by getting an excess return over the Treasury yield.
Capitalist Punishment, Washington Post, February 6, 2009
... Figures compiled by Lucian Bebchuk of Harvard Law School and Yaniv Grinstein of Cornell's school of management show that the pay of the top five executives in publicly traded firms amounted to 5 percent of those companies' earnings in 1993-95 and 10 percent in 2001-03. Improvements in those companies' performance and increases in their size accounted for just 20 percent of this increase, they calculated, leaving 80 percent of the increase in top-executive pay "unexplained."
Executive Pay: Obama's PATCO Moment, BusinessWeek, February 3, 2009
Not everyone agrees that Obama's move to reduce compensation on Wall Street will have broader effects. "This by itself will not necessarily improve things outside the financial sector," says Lucian Bebchuk, an executive compensation expert at Harvard Law School. Bebchuk would like to see legislation to increase shareholder rights as a bulwark against excessive pay.
CEOs and Market Woes: Is Poor Corporate Governance to Blame?, Knowledge@Wharton, December 10, 2008
... Lucian A. Bebchuck, a law professor at Harvard who specializes in governance, says such reforms would strengthen U.S. corporations, arguing they would serve shareholders better if they adopted some of the United Kingdom's governance rules. In addition to opening the ballots to challengers and shareholder-sponsored issues, reform should include requiring all directors to face election every year, he says.
Putting a Value on a C.E.O., The New York Times, December 1, 2008
"What has caused the most outrage is the difference between pay and actual performance," said Lucian Bebchuk, the director of the program on corporate governance at Harvard Law School. Mr. Bebchuk says he doesn't prescribe limiting compensation; he's fine with outsize pay as long as it matches outsize performance.
In the Eye
of the Beholder, The Gulf, December 2008
... Yet governance should not be viewed as a salve for all wounds. "No board can control all the transactions, even sizeable
ones, of a big financial institution. They need to give their people some room to manoeuvre," says Holger Spamann, executive director of corporate governance at Harvard Law School.
The 2009 Proxy Season and the Year of Investor Anger, New York Law Journal, November 17, 2008
If shareholder reimbursement is proxy access lite, a recent proposal by Harvard law professor Lucian Bebchuk can best be described as proxy access "heavy". During the 2008 proxy season, Mr. Bebchuk submitted a proposed bylaw at Electronic Arts that would require the company to include any shareholder proposal in the company's proxy materials so long as the proposal was permissible as a matter of state law and met certain minimal criteria, even if the same proposal, absent the bylaw, would otherwise be excludable under the SEC's Rule 14a-8.
Shareholder Voting Hardly Democratic Way, Chicago Tribune, November 4, 2008
Lucian Bebchuk, a professor at Harvard Law School who has written extensively on shareholder rights, said people approach the different sorts of votes with different expectations. "In the political context, voting is viewed by many, and rightly so, as an end in itself," Bebchuk said. "In the corporate context, the argument for shareholder voting is a functional argument. It's not that voting is desirable in itself."
Optimistic Activists, The Deal Newsweekly, October 31, 2008
Carl Icahn named strong candidates to Yahoo! Inc.'s board, including Harvard Law School professor Lucian Bebchuk and investor Mark Cuban. Jana Partners LLC's industry-expert candidates helped facilitate a $1.8 billion sale of Cnet Networks Inc. to CBS Corp. in May.
Government's Bailout Path a Maze of Unknowns, Los Angeles Times, October 4, 2008
Harvard Law School professor Lucian A. Bebchuk suggested in a recent paper that the government divide its fund into, say, 20 equal portions and promise the manager of each a set percentage of the profit generated by his or her purchases over time. "The competition among these 20 funds would prevent the price paid for these mortgage assets from falling below fair value," he wrote, "and the fund managers' profit incentives would prevent the price from exceeding fair value."
McCain's Choice, The Weekly Standard, September 26, 2008
... 3. Improve on both Paulson and House Republicans with a new offer. This, based on my admittedly imperfect understanding of all this (but McCain has access to people with really good understanding), might be a combination of Larry Lindsey's refinance-home-owners proposal and Lucian Bebchuk's (and others') proposal for direct bank recapitalization through Treasury security purchases and right offerings to shareholders.
McCain Appears Wrong on Fannie Pay, MSNBC, September 19, 2008
Lucian Bebchuk of Harvard Law School, an expert on corporate governance, confirmed to First Read that Fannie Mae and Freddie Mac were private companies until being recently taken over by the federal government (which came after Raines' and Johnson's tenures). Bebchuk said that maybe McCain was referring to past Fannie shareholders in the audience when he asserted that the executive compensation was "your money." Or perhaps McCain was making the point -- very loosely -- that now the federal government has taken over Fannie, any money that Raines or Johnson received is money taxpayers no longer have. But both assertions, he said, would be stretches.
How Long Will Politicians Look the Other Way on CEO Pay?, The Christian Science Monitor, August 25, 2008
Shareholders have become somewhat more aware of the cost of high executive pay. A study by Harvard University professors Lucian Bebchuk and Yaniv Grinstein found that the pay and benefits given to the top five executives in a large group of big corporations in the years 2001 to 2003 amounted to 10 percent of the total earnings of these firms. So executive pay is no longer an insubstantial matter to shareholders.
Yahoo had until Friday to pick the two directors from Icahn's allies. Icahn's short list also included Mark Cuban, who sold Broadcast.com to Yahoo in 1999; venture capitalist Adam Dell; Harvard Law professor Lucian Bebchuk; and co-CEO of New Line Cinema, Robert Shaye.
Yahoo Vetting Icahn's Board Nominees: report, MarketWatch, August 12, 2008
The new additions to the Yahoo board will be pulled from the list of names that Icahn originally floated as an alternate slate of directors for his proxy battle. They include Biondi, Chapple, Internet billionaire and Dallas Mavericks owner Mark Cuban, former New Line Cinema CEO Bob Shaye, venture capitalist Adam Dell, former Clearbridge Advisors CEO Brian Posner, Harvard law professor Lucian Bebchuk and long-time Icahn associate Keith Meister.
Small Shareholders Get a Chance to Question Yahoo's Yang, San Jose Mercury News, July 31, 2008
One of Yahoo's directors, Robert Kotick, will resign and the board will then have two weeks to appoint two other directors from a list that includes Jonathan Miller, former chief executive of AOL, and Lucian A. Bebchuk, Frank J. Biondi, Jr., John H. Chapple, Mark Cuban, Adam Dell, Keith Meister, Edward H. Meyer, and Brian S. Posner, each of whom was on Icahn's slate of director nominees.
Icahn had originally vied to replace the company’s entire board, with Lucian A. Bebchuk, Frank J. Biondi Jr., John H. Chapple, Mark Cuban, Adam Dell, Keith A. Meister, Edward H. Meyer, and Brian S. Posner as his candidates.
Yahoo Settles With Investor Carl Icahn, DMNews, July 21, 2008
According to a July 14 US Securities and Exchange Commission filing, Icahn's nominee list includes Lucian Bebchuk, Frank Biondi Jr., John Chapple, Mark Cuban, Adam Dell, Keith Meister, Edward Meyer and Brian Posner. According to Yahoo, Jonathan Miller, a partner in the Velocity Interactive Group and former Chairman and CEO of AOL, has been added to the list of nominees.
Details of Yahoo (YHOO) And Carl Icahn Agreement; Must Maintain Ownership of 30M Shares, StreetInsider, July 21, 2008
The Yahoo Board will appoint two individuals to serve as directors of the Company until no earlier than the 2009 Annual Meeting, subject to the terms of the Settlement Agreement, which individuals will be selected at the Board’s sole discretion, upon the recommendation of the Company’s Nominating and Corporate Governance Committee, from the following list: Lucian A. Bebchuk, Frank J. Biondi, Jr., John H. Chapple, Mark Cuban, Adam Dell, Keith Meister, Edward H. Meyer, and Brian S. Posner, each of whom was on the Icahn Group’s slate of director nominees, and Jonathan Miller.
Yahoo, Carl Icahn Settle Before Proxy Fight, eWeek, July 21, 2008
The potential Icahn nominees are: Keith Meister, principal executive officer of Icahn Enterprises; Dallas Mavericks owner Mark Cuban; former Viacom CEO Frank J. Biondi Jr.; Adam Dell, venture capitalist; Harvard professor Lucian Bebchuk; former Nextel Partners CEO John Chapple; investment manager Edward Meyer; money manager Brian Posner; and Robert Shaye, founder and co-CEO of New Line Cinema. Bostock, Yahoo CEO Jerry Yang and Icahn all cheered the compromise in unique fashion, though it was Bostock's comment that stuck out.
Board Compromise Suggested For Yahoo, WebProNews, July 21, 2008
Four Icahn slate nominees: Adam Dell, brother of PC magnate Michael, Edward Meyer, John Chapple, and Lucian Bebchuk, earned a place in Jackson's choices. Even more attention to this group will happen on Tuesday, when Yahoo reports quarterly earnings after market close.
Yahoo Activist Calls for Board Battle Compromise, Reuters, July 21, 2008
He called on shareholders to support four Icahn nominees, including Adam Dell, a venture capital investor and investor in start-up HotJobs which was sold to Yahoo, two advertising executives, Edward Meyer and John Chapple, along with Harvard professor and outspoken executive pay critic Lucian Bebchuk. "We are confident this new hybrid Yahoo board can effectively conclude a deal with them (Microsoft)," Jackson said.
A Truce for Yahoo, but the War May Not Be Over, The New York Times, July 21, 2008
Mr. Miller represents a fine addition to Yahoo’s board. The rest of the slate presents a tougher choice. Mark Cuban has real Internet experience. But his biggest moment was selling Broadcast.com to Yahoo for $5 billion, one of Yahoo’s worst deals ever. Otherwise, the choice is a bit of a grab bag. Among them are Frank J. Biondi Jr., the former chief executive of Viacom, Adam Dell, a venture capitalist and brother of the PC monger, and Lucian A. Bebchuk, a law professor and shareholder rights advocate.
Miller Backs Yahoo Board; Adviser for Icahn, Pensions & Investments, July 18, 2008
In the Legg Mason statement, Mr. Miller said, "We believe the board is independent and focused on value creation for long-term shareholders. … Mr. Icahn's slate includes people experienced in technology, advertising, capital markets and governance. We would prefer that the company and Mr. Icahn reach a mutual agreement on the composition of the board and end this disruptive proxy contest," although Legg Mason will vote for the entire existing Yahoo board.
Mark Cuban, Internet entrepreneur and controlling owner of the NBA’s Dallas Mavericks; Lucian A. Bebchuk, Harvard Law School professor; and Mr. Icahn, managing partner of Icahn Partners, are among the nine candidates on the Icahn slate.
Yahoo's Current Board Versus Icahn's Challengers, The Associated Press, July 14, 2008
Carl Icahn moved ahead with his attempt to overthrow Yahoo Inc.'s board of directors by submitting his final list of candidates Monday. The nominees remain the same as those he first provided in May, except the list has been whittled from 10 to nine candidates to reflect Yahoo's decision to reduce the size of its board. Here's a look at the incumbents and the Icahn-led opposition... Lucian Bebchuk: A professor at Harvard Law School, where he is also the director of the program on corporate governance.
Shareholder Sedition, Forbes, June 30, 2008
Carl Icahn hasn't yet cleaned out Yahoo's executive suite. Pulling off a putsch is expensive and risks countersuits. "A challenger has to bear the costs," says Harvard Law professor Lucian A. Bebchuk, "but would be able to capture only a limited fraction of the benefits produced for shareholders." One small triumph doesn't make a trend.
Four New Yahoos?, The Wall Street Journal, June 13, 2008
Yahoo shareholders also should favor directors who bring more than a simple willingness to vote yes to a sale to Microsoft. There is a quartet from Mr. Icahn's slate who fit the bill. Lucian Bebchuk is an expert in corporate governance and compensation -- where Yahoo's board falls short, as the severance-pay plan shows.
A 'Chewable' Poison Pill, Directorship, June 1, 2008
After early rejections by CA and others, Bebchuk changed the proposal to make it more palatable to boards. Since then, the bylaw has been adopted by AIG, Time Warner, and more recently, CVS, Disney, Bristol-Meyers Squibb and JCPenney.
A Gamble, but What if He Wins?, The New York Times, May 20, 2008
The irony is that Mr. Bebchuk, who Mr. Icahn is nominating for Yahoo’s board, wrote a paper in 2001 with the following conclusion: "Proxy fights unaccompanied by an acquisition often suffer from substantial shortcomings that limit the use of such contests in practice."
Paying For Failure, Forbes, May 19, 2008
The top-paid executives at the country's public companies now collect pay equal to 10% of corporate profit, according to a 2005 study by Lucian Bebchuk of Harvard Business School and Yaniv Grinstein of Cornell University.
Yahoo's Odd Couple, The Wall Street Journal Blogs, May 15, 2008
You couldn't find two people more opposite in temperament than Bebchuk, who maintains an intellectual, diplomatic, somewhat formal manner and a deep interest in research, and Cuban, who is famously outspoken and is known for his good instincts on business.
Text of Icahn's Letter to Yahoo Board, The New York Times, May 16, 2008
Bebchuk has been a frequent contributor to policy making and public discourse in the corporate governance area. He has appeared before the Senate Finance Committee, the House Committee of Financial Services, and the SEC. He has published many op-ed pieces, including in the Wall Street Journal, the New York Times, and the Financial Times. He was included in the list of "100 most influential people in finance" of Treasury & Risk Management and the list of "100 most influential players in corporate governance" of Directorship magazine.
Curse of the 'Stick Around' Bonus, Financial Times, May 6, 2008
"Retention bonuses are bonuses in name only. They are no different from paying an additional fixed salary for an additional period. Even if a company and its board become convinced that an extra payoff is necessary to retain a valuable executive, such value should commonly be provided in the form of performance-based pay."
A $74 Million Bargain, Forbes, April 30, 2008
... Lucian Bebchuk, director of the corporate governance program at Harvard Law School, says the recent troubles in the financial sector highlight the need to follow a basic principle when arranging executive compensation plans: "If it isn't earned, it should be returned."
CalPERS Pushes for Clean House at Standard Pacific, TheStreet.com, April 17, 2008
In a letter to fellow shareholders filed Thursday with the Securities and Exchange Commission, CalPERS cites a 2004 study by Harvard professor Lucian Bebchuk, that said "companies with staggered boards, poison pills, supermajority voting requirements and golden parachutes deliver less shareholder value than those companies that do not have such measures in place."
Galvin-izing the Debate, Financial Week, April 7, 2008
... Harvard Law School professor Hal Scott, director of a congressional advisory committee on capital markets regulation, said the Treasury Secretary’s proposals aren’t meant to be as disruptive as Mr. Galvin suggests. "Mr. Paulson is raising some legitimate questions here," Mr. Scott said.
Will it Fly?, Economist.com, April 3, 2008
... Hal Scott of Harvard Law School, director of an independent commission on capital-markets regulation, fears a repeat of Sarbanes-Oxley, the corporate-governance act rushed through in the wake of the Enron and WorldCom collapses, amid a similar "something must be done" atmosphere.
On Paper, Wall Street Gets its Way, New York Times, April 1, 2008
More than a year ago, when the markets were flying high, a chorus of alarm went up on Wall Street. Talk spread that the United States risked losing its edge in the financial world… Hal S. Scott, the Harvard Law School professor who directed the Committee on Capital Markets Regulation, said on Monday that he agreed with many of the Treasury's short-term recommendations. But he argued that the government should not waste its time with the medium-term proposals and instead move directly toward more radical reform with a principles-based system. "Too often we have a problem and we say 'here's a rule' and then people figure out a way to get around the rule," Mr. Scott said. "We'd be better off with a principle."
Paulson Plan Begins Battle Over How to Police Market, Wall Street Journal, March 31, 2008
In a sweeping proposal circulated over the weekend, Treasury Secretary Henry Paulson slaughtered a number of Washington's sacred cows, proposing to merge or eliminate institutions of long standing including the Securities and Exchange Commission, and to create a controversial new role of supercop for the Federal Reserve… "It's not a good idea to have people competing with each other, particularly if they're competing in laxity," says Hal S. Scott, professor of international financial systems at Harvard Law School.
Paulson to Propose New U.S. Financial Regulators, Bloomberg News, March 29, 2008
Hal Scott, a professor at Harvard Law School who heads the Committee on Capital Markets Regulation, a group of executives and academics whose efforts Paulson has endorsed, said it will be "very hard" to implement any of the recommendations. "The political reality is that the merits will get lost in the argument," Scott said. "They recognize it won't be done soon."
SEC Role is Scrutinized in Light of Bear Woes, Wall Street Journal, March 27, 2008
On March 11, amid rumors that Bear Stearns Cos. was in trouble, Securities and Exchange Commission Chairman Christopher Cox said he had "comfort" with the amount of capital held by five of the largest investment banks… Harvard Law School Professor Hal Scott, who heads a nongovernmental bipartisan committee on capital-market regulation, says one solution might be to fold the SEC into a broader agency that has responsibility for the overall stability of the financial system. That is the model followed by the United Kingdom's Financial Services Authority.
U.S. Markets Seen Losing Ground to Global Competitors, Reuters, March 26, 2008
The United States received only 6.9 percent of the funds raised in global initial public offerings in 2007 and did not participate in any of the top 20 global IPOs, Harvard Law School Professor Hal Scott said at the U.S. Chamber of Commerce's second annual capital markets conference. "We found U.S. public markets had increasingly become uncompetitive," said Scott, director of the private-sector Committee on Capital Markets Regulation.
Battling Moguls Take the Stand, CNN Money.com, March 10, 2008
"This case will hinge on the testimony," says Lucian Bebchuk, director of Harvard Law School's Program on Corporate Governance. "When the court tries to interpret a situation like this, they look at communications between parties, and the reasonable expectations the parties had. The court will get that from the testimony."
Monks' Tale is a Governance Tragedy, Canada Globe and Mail, January 30, 2008
A study by Harvard law school professor Lucian Bebchuk has found that, in total, the top five executives of U.S. public companies saw their compensation rise significantly between the mid-nineties and early 2000s. As a function of a company's profit, he found that, over all, their compensation rose from 4.7 per cent of profits in 1993-1995 to 10.3 per cent in 2001-2003.
Extreme CEO Payoffs: When Shareholders Lose, CNNMoney.com, December 10, 2007
Still, compensation consultants have "strong incentives to use their discretion to benefit the CEO," according to a 2003 study by Lucian Bebchuk of Harvard University and Jesse Fried of the University of California at Berkeley. "Providing advice that hurts the CEO's pocketbook is hardly a way to enhance the consultant's chances of being hired in the future," wrote the professors. "Moreover, consulting firms often have other, larger assignments with the hiring company, which further increases their incentive to please the CEO."
What if C.E.O. Pay Is Fair?, The New York Times, October 13, 2007
I asked Lucian Bebchuk, the big compensation critic at Harvard, what would happen if C.E.O. pay was finally subjected to real market forces. My worry is that it has risen so high in the rigged market that it would never come down, even in a real one. Professor Bebchuk disagreed. "We cannot predict the true market level because we have not had a well functioning market," he said. "But markets do adjust. If the true market level were significantly below the current level, then compensation would go down. It wouldn't happen overnight, but it would happen."
It's a counterargument to a theory proposed by Harvard professor Lucian Bebchuk, which argues that the escalation in executive pay has been determined by board cronies rubber-stamping fat packages."
Scrutinizing Compensation, Forbes, August 14, 2007
Yaniv Grinstein, an assistant professor of finance of the Johnson School at Cornell University, has recently studied options backdating. He and co-authors Lucian Bebchuck and Urs Peyer questioned what this not always illegal practice tells us about the state of corporate governance. Backdating is the practice of granting a stock option, a common form of compensation for executives, which is dated prior to the date the company actually granted the option. Depending on the circumstances, backdating might not be illegal.
Beckham Bends It Like A CEO, LA Daily News, August 4, 2007
I don't get it. Where is the outrage? Politicians and pundits love to "bend it" when it comes to stoking resentment about what they call excessive pay for corporate executives. Yet not even the most populist pol is screaming about the inequality of the contract that will pay David Beckham more in one season than the average Los Angeles Galaxy fan will earn in a working lifetime.In their influential book, "Pay Without Performance," Harvard and Berkeley law professors Lucian Bebchuk and Jesse Fried acknowledge that "star athletes are highly paid, some more than the average S&P 500 CEO." But they claim that "the process generating the compensation" for sports stars is "quite different" than that for CEOs.
Disney Amends Bylaws To Limit 'Poison Pill' Provisions, Associated Press, July 2, 2007
The Walt Disney Co. (DIS) has adopted a plan to limit the use of so-called poison pill shareholder rights plans that are designed to thwart hostile takeovers…The proposal adopted by Disney's board is a version of the one being promoted by Harvard law professor and corporate governance expert Lucian Bebchuk. Bebchuk had wanted Disney's board to agree to a 75% vote to approve any poison pill. Disney objected, saying the proposal was too inflexible. The company has not had any kind of poison pill provision in place since the late 1990s.
CEOs Under Fire, The National Journal, June 16, 2007
If Ferlauto represents the (feather-covered) face of the "say on pay" effort, the real father of the idea is Lucian Bebchuk, a Harvard University economist and law professor who, more than any other individual, has supplied the research and rhetorical firepower for the movement to rein in executive pay, mostly in the past six or seven years. In a blizzard of papers, books, and op-eds, along with congressional testimony and television appearances, Bebchuk has challenged the conventional argument that CEO pay is based on free-market forces in which rational shareholders of a company pay no more than what a particular executive deserves, based on the person's talent and the value that his or her contributions add to the company.
Activist Investors Get More Respect: Boards are Listening, and Shareholder Proposals are Making Headway, Business Week, June 11, 2007.
When Harvard Law School professor Lucian A. Bebchuk filed a shareholder proposal with Home Depot Inc. HD on Dec. 12, his expectations were low. It asked the company to require that two-thirds of its board approve executive compensation plans--a novel concept that hadn't been tested in prior proxy seasons. Bebchuk also sought to have the change written into Home Depot's corporate bylaws, something most companies are loath to do. "I did not expect [they] would be willing to make changes in the bylaws in response to a proposal by someone who really is an individual shareholder," says Bebchuk, who owns just 90 shares.
The Contrarian, Stephen Bainbridge vs. Lucian Bebchuk: an intellectual battle. The Daily Deal, June 1, 2007.
"Yes, accountability is important, but there are countervailing advantages to authority that people like Lucian Bebchuk don't give credence to," says Stephen Bainbridge, a corporate law professor at the University of California, Los Angeles, who's waged an intellectual battle against Bebchuk in law reviews and on his well-read blog. "He's too caught up with this image of American businessmen and women as rapacious people who must be controlled by activist shareholders."
Food for Thought, The Daily Deal, June 1, 2007.
Listokin points out that management can spend corporate assets to solicit votes, while dissidents cannot, and that management retains oversight of the ballot counting. Management can also get a running count of voting results, while dissidents cannot. And like Kahan and Rock, Listokin casts a skeptical eye at ADP, which he believes should be subject to some form of oversight. As Kahan and Lucian Bebchuk did in one paper, Listokin also argues that companies should partially reimburse opponents of management-sponsored resolutions if they receive a certain percentage of the vote.
Pay Check, The New Republic, May 21, 2007.
Harvard's Lucian Bebchuk and Berkeley's Jesse Fried have found lots of evidence supporting this theory. The two have looked at all the factors one would associate with a weak board of directors—the CEO is a director of the board, or a member, or the members serve on several boards—and all of them correlate with higher CEO pay. The discovery that executive compensation is dependent not just on supply and demand but on the independence of the board of directors helps explain lots of facts that the pure free-market model can't—unnecessarily complicated pay schemes, bonuses to fired executives who were owed nothing, et cetera.
Dollars and Democracy, Forbes, May 21, 2007.
Executives need an incentive to get up in the morning. Maybe they don't need that much. In any event the sin in corporate pay is not so much its magnitude as the fact that it is often completely decoupled from performance, as Harvard law professor Lucian Bebchuk has documented.
Dow Jones Board Won't Act As Bancrofts Deliberate, Wall Street Journal, May 17, 2007.
"The view of corporate law in the U.S. is that directors don't always have to do what shareholders tell them to do," said Lucian Bebchuk, a professor at Harvard Law School who studies corporate boards and governance issues. "It is reasonable to think the Dow Jones directors should explore the offer, investigate it and make a formal recommendation to shareholders."
Web Winners, The Philadelphia Inquirer, May 13, 2007.
The Harvard Law School's blog on corporate governance is a heady forum about related legal matters, such as proposed and pending legislation, and court rulings on insider trading and shareholder empowerment. Contributors include Lucian Bebchuk, director of Harvard's program for corporate governance and a vocal critic of stratospheric pay for corporate executives.
A New Delaware? The Daily Deal, May 7, 2007.
Corporation franchise fees are a major source of revenue for Delaware, and North Dakota also hopes to profit from them. It will charge fees that are half of Delaware's and would earn them in two ways: Either companies would go public as corporations of that state, or already-public companies would reincorporate there. The latter will likely prove difficult, says Lucian Bebchuk, a professor at Harvard Law School, since boards control reincorporation decisions. Clark says that shareholder pressure may over time push companies to leave Delaware for another jurisdiction.
How to Limit Executive-Pay Scandals, The New Republic, May 5, 2007.
Last year, the president of the United States—the CEO of the country—was paid $400,000, with a $50,000 allowance for expenses and up to $100,000 for travel. The amounts are fixed by statute and do not vary with the success or failure of his administration. With responsibilities hardly comparable to the president's, the CEO of Citigroup made nearly $26,000,000 in 2006 (counting all benefits). He may have done better in his job than the luckless president did in his, but surely not 47 times better. Further, if the average annual wage of non-executive employees of Citigroup was, say, $50,000, the CEO made 520 times their salary…The cumulative effect of this pleonexia—the revived word for abnormal greed—is "hardly pocket change," as Lucian Arye Bebchuk and Jesse M. Fried wrote in the Journal of Corporation Law two years ago.
Shareholders One Step Closer to Having a "Say on Pay", SocialFunds.com, May 3, 2007.
Executives at top companies command huge salaries, millions of dollars a year with perks and stock options. People might agree or disagree whether some of these CEOs, CFOs and COOs earn their huge paychecks, but no one can say $1 million a year (or more) is a small amount of money. A Bloomberg poll from March 2006 found that more than 80% of Americans polled—divided evenly between the well off and those making under $10,000 a year—agreed that CEOs are paid "too much." According to Harvard Professor Lucian Bebchuk, who recently testified before the House Financial Services Committee, over the past 15 years the salaries of Fortune 500 CEOs have risen from 140 times what an average worker makes, to over 500 times an average worker's pay. Businesses are required to post the minimum wage in a visible location—currently $5.15 an hour. These same businesses certainly don’t post what their maximum wage earners are making.
America Frets about Executive Pay, Financial Times, May 3, 2007.
The US House of Representatives recently passed a bill to strengthen shareholder oversight of top executive pay. More than 50 Republicans joined the majority. The law's prospects in the Senate (where a similar bill was immediately introduced by Barack Obama) are uncertain, but that Republican backing in the House was telling in itself. The narrow issue of top executive pay, tucked inside the broader issue of rising inequality of incomes, appears to be gaining some unaccustomed political traction… The leading academic spokesman for the view that the system is broken is Lucian Bebchuk of Harvard Law School. Mr Bebchuk testified in support of the proposed "say on pay" law to a House committee in March. He argues that patterns of top pay reflect an abuse of managerial power - in effect, that pay is not negotiated at arm's length, but among insiders, with much mutual back-scratching and boards failing in their duty to shareholders.
Congress Pecks Away at CEO Pay, Christian Science Monitor, April 30, 2007.
Maybe, at last, corporate executive pay is being tamed. Three years ago, Business Week magazine headlined a story on executive pay, "The Gravy Train May Be Drying Up." It didn't happen. Last year, chief executive officers at 350 large American corporations enjoyed an 8.9 percent average boost in direct compensation (salary, bonus, benefits, and long-term incentives), finds Mercer Human Resources Consulting, in New York. Median compensation for the CEOs was $8.2 million. Half got more, half got less… Executive pay is no longer a simple matter of envy. It has "macroeconomic" consequences, according to a study by Lucian Bebchuk of Harvard Law School and Yaniv Grinstein of Cornell University. They found that the aggregate compensation paid to the top five executives in US public companies had reached 10 percent of profits, roughly $350 billion, in 2003 – twice the 5 percent level of 1993. "This issue is not merely symbolic but rather of practical significance," Professor Bebchuk testified to Frank's committee.
More Intrusive Federal Rules For Executive Compensation Unjustified, Washington Legal Foundation, April 27, 2007.
In their book, "Pay Without Performance" (Cambridge, MA: Harvard University Press, 2004), upon which House Report 110-088 heavily relies, law professors Lucian Bebchuk and Jesse Fried contend that actors and sports stars bargain at arms'-length with their employers, while managers essentially set their own compensation. As a result, they claim, even though managers are under a fiduciary duty to maximize shareholder wealth, executive compensation arrangements often fail to provide executives with proper incentives to do so and may even cause executive and shareholder interests to diverge. In other words, the executive compensation scandal is not the rapid growth of management pay in recent years, but rather the failure of compensation schemes to award high pay only for top performance.
Stock Rules Irk NYC as Wall Street Parties On, Los Angeles Times, April 23, 2007.
Judging from the crowded tables at the Hawaiian Tropic Zone in Times Square, it's hard to believe that some people are fretting about the future of Wall Street… The problems are genuine, said Hal Scott, a Harvard Law School professor who headed the Committee on Capital Markets, one of the groups calling for reduced regulation. "We all want quality and integrity" in the marketplace, Scott said. "These are the strengths of our market. But it doesn't mean that every rule or regulation contributes to that." As one example, Scott and others cite the diminishing role the U.S. is playing in initial public offerings.
SEC Explores Opening Door to Arbitration, Wall Street Journal, April 16, 2007.
The Securities and Exchange Commission is exploring a new policy that could permit companies to resolve complaints by aggrieved shareholders through arbitration, limiting shareholders' ability to sue in court. … The idea of using arbitration to resolve disputes between companies and their shareholders was recommended in November by a blue-ribbon committee led by Harvard Law Professor Hal Scott, and encouraged by Treasury Secretary Henry Paulson.
Ten Ways to Restore Investor Confidence in Compensation, Wall Street Journal, April 9, 2007.
Outrage over executive compensation has hit a boiling point. And it may get worse before it gets better. New proxy disclosure rules approved by the Securities and Exchange Commission last July are shedding a harsh light on the breadth of corporate chiefs' oversized packages. The overhaul requires companies to provide a total compensation figure for each of their top five officers… Investors should be able to figure out whether generous bonuses reflect good performance or poorly set targets, says Lucian Bebchuk, a Harvard Law School professor and co-author of the book "Pay Without Performance."
A Corporate Governance Gadfly Irks CEOs, Fortune, April 4, 2007.
He insists he isn't an activist. Plenty of America's CEOs must hope he means it. "I'm mainly a kind of ivory tower academic," says professor Lucian Bebchuk of Harvard Law School, and that he surely is - the only person I know of with four graduate degrees from Harvard (master's and doctoral degrees in law and economics). … Bebchuk is best known for careful research that skewers the way CEOs get paid. From the bosses' perspective he has been distressingly energetic, not only writing a book ("Pay Without Performance") but also delivering lectures, contributing op-ed pieces, conducting seminars and testifying before Congress.
Does It Pay to Tell Investors Extra Compensation Details? Wall Street Journal, April 2, 2007.
Many U.S. corporate directors are grumbling about complex new federal rules requiring more disclosure of executive pay, perquisites and retirement benefits. Yet a surprising number of major corporations are going beyond the requirements, offering investors additional details about compensation, in the name of improved transparency… Lucian Bebchuk, a Harvard law professor and El Paso investor who has clashed with the board, isn't impressed. He says the profiles don't comply with the SEC rules - leaving out, for instance, total compensation - and are more prominently placed than they should be.
Backdated Options May Snare Some Directors as Critics Blast Rubber-Stamping, USA Today, March 29, 2007.
As the pace of investigations quickens in the stock-option backdating scandals and companies kick off their annual shareholder meetings, there's mounting evidence that many directors failed in their roles as corporate watchdogs and may soon face consequences. … The "Lucky Directors" study, by scholars at Harvard and Cornell universities and the INSEAD business school, found that 9% of 28,764 dates when grants were awarded to one or more directors between 1996 and 2005 fell on days when their companies' stock prices hit a monthly low. "A large number of directors - much larger than those named in legal proceedings - received stock-option grants that were opportunistically timed," says Lucian Bebchuk, a Harvard Law School professor who co-authored the study.
How Five New Players Aid Movement to Limit CEO Pay, Wall Street Journal, March 13, 2007.
Harvard Law School Professor Lucian Bebchuk is one of the intellectual engines of the pay-restraint movement, producing studies arguing that weak boards are paying executives without regard to company performance. Mr. Frank has cited Mr. Bebchuk's research showing executives claiming a growing share of corporate profits. SEC Commissioner Roel Campos says Mr. Bebchuk’s pension research was 'very influential' in crafting the new disclosure rules. In 2000, Mr. Bebchuk, who holds doctorates in both law and economics, began working on compensation issues, using as a base his previous work on boards' lack of accountability during takeovers. In 2004, he co-wrote a book, "Pay Without Performance," which criticized boards for offering CEOs sizable pay deals.
Bristol-Myers Tightens Process for Setting C.E.O. Pay, New York Times, March 13, 2007.
Responding to a drumbeat for better corporate governance, Bristol-Myers Squibb said today that it had agreed to a new guideline for establishing pay for its chief executive. ... The decision followed a proposal submitted by Lucian Bebchuk, a professor at Harvard Law School. Professor Bebchuk said that the company initially resisted his idea, but agreed last week. Mr. Bebchuk posted a history of his proposal online. In a statement, a Bristol-Myers spokesman, Tony Plohoros, said: "Our board of directors agreed in principle with Mr. Bebchuk's proposal. As such, our board has adopted a new corporate governance guideline that calls for 75 percent of independent directors to approve C.E.O. compensation."
Paulson Presses to Ease Rules That Experts Defend, Bloomberg, March 13, 2007.
U.S. Treasury Secretary Henry Paulson convenes a summit on capital markets today to explore ways to curb regulations that he and other critics say are driving companies to more lightly governed markets overseas. … "We have an uncompetitive market that is going to shoot us in the foot if we don't do anything about it," said Hal Scott, a Harvard University law professor who headed a committee that made recommendations for rolling back the Sarbanes-Oxley law.
Investors Back 'Say on Pay' Bill, Wall Street Journal, March 8, 2007.
Investor advocates on Thursday expressed support for a Democratic bill that would give shareholders at U.S. companies the right to cast a nonbinding vote on executive pay. The American Federation of State, County and Municipal Employees, a union group, joined a Harvard University law professor and corporate governance experts to tell a House panel that an advisory vote would give investors a mechanism to influence board directors who set pay for public-company executives. "An expression of widespread shareholder dissatisfaction would provide a valuable signal to the board," Lucian Bebchuk, director of the corporate governance program at Harvard Law School, said in prepared testimony. "The fact that the outcome of the vote would be publicly known would apply some pressure on the board to take the shareholders' preferences into account."
Panel Split Over Requiring Shareholder Vote On Exec Pay, National Journal's CongressDaily, March 8, 2007.
Proponents of Frank's bill noted the United Kingdom has a similar system and there have not been any repercussions. Instead, it has helped increase the level of dialogue between institutional investors and boards, they said. "I think there is really no evidence that the management of European companies are doing worse because of this requirement," said Lucian Bebchuk, a Harvard University professor who has studied the issue. In addition, one major U.S. corporation, Aflac, has gone to such a system. John Castellani, president of the Business Roundtable, which opposes the bill, said U.S. boards are more independent than those in the United Kingdom and that American board members are held to a higher legal standard than U.K. members, thus bringing a higher standard of corporate governance. "Corporations were never designed to be democracies. Their decision-making process was not designed to be run like a New England town hall meeting," Castellani said.
Disney Pencils in a Return to Hand-Drawn Films, MarketWatch, March 8, 2007.
Also at the meeting, all 11 Disney directors were re-elected to the board with 98% of the vote. Disney investors, however, voted with a majority of 58% in favor of a shareholder-rights plan that the company's board and management had opposed. The plan would restrict the board's ability to enact a so-called poison pill to fend off a takeover. But the proposal needed a two-thirds majority to be enacted. Company officials said they would give consideration to creating a similar initiative. The proposal was proposed by Harvard Law School professor and corporate-governance expert Lucian Bebchuk.
CEO Group Hits US Bill on Shareholder Pay Votes, Reuters, March 8, 2007.
A lobbying group for corporate CEOs on Thursday criticized as misguided a move to let U.S. shareholders vote on CEO pay packages. ... In 2003, the average CEO got roughly 500 times as much pay as the average worker, compared to a multiple of 140 in 1991, said Harvard Law School Professor Lucian Bebchuk.
Lawmakers Divided Over Exec Comp Bill, The Daily Deal, March 9, 2007.
Witnesses expressed diverging opinions on the incentive that pay packages provide CEOs to instigate mergers that may not be in the best interest of shareholders or corporations. In an interview, Harvard Law School professor Lucian Bebchuk said that in the past CEOs' interest in keeping their jobs may have led them to avoid value-creating transactions. But severance packages now are so large that executives routinely agree to transactions that don't make sense.
Shareholder Control and Corporate Boards, Washington Post, March 2, 2007.
Professor Lucian Bebchuk of Harvard Law School is a tireless promoter of "shareholder democracy." In an article about to be published in the Virginia Law Review, he continues his quest to paint shareholders as the helpless victims of greedy, incompetent managers by arguing that shareholders cannot control who sits on the boards of public corporations. The solution, Bebchuk argues in "The Myth of the Shareholder Franchise," is to breathe life into shareholders' voting rights by changing the rules of corporate law to allow disgruntled shareholders to vote out directors more easily.
Informer, Forbes, March 12, 2007.
A new Harvard study suggests public companies led by chief executives who get the highest percent of the total compensation pot paid to their firm's five top people, trade for lower multiples of replacement value and later underperform even more. Yet, write Lucian Bebchuk, Martijn Cremers and Urs Peyer after eyeing 1,000 stocks from 1993 to 2004, the big bosses' "pay slice" rose during that time by a tenth, to 36.3%. The profs opine little about their take but call the stats "worthy of financial economists' attention."
Fannie Mae Will Not Pay $44.4 Million to Executives, Reuters, February 20, 2007.
Fannie Mae will not pay $44.4 million budgeted for executives who led the mortgage finance company during years of faulty accounting, the company said in a regulatory filing on Tuesday... In this case, returning pay might be proper and not a slight on the executives involved, said Lucian Bebchuk, the director of the corporate governance program at Harvard Law School. "This follows the principle that if was not earned it must be returned," he said. Because the bonuses were tied to earnings that ended up being flawed, he said, "It is not necessarily the executive's fault that the money should be returned."
Market, Not Taxes, Should Dictate Pay, Daily Report, February 19, 2007.
The increase in executive compensation has hardly been an unrelenting upward trend in recent years. Actually, top executive pay moved downward for three years after 2000, before recovering slightly in tandem with the stock market in 2004. According to one report from the Cato Institute, "chief executive officer pay from the top 100 in Forbes & fell 54 percent from 2000 to 2003." And Mr. Trotter's own sources, Lucian Bebchuk and Yaniv Grinstein, "estimated that among the S&P 500 firms, average CEO pay fell 48 percent from 2000 to 2003."
Tax Plutocrats to Restrain Their Pay, Daily Report, February 13, 2007
There has been a great deal of talk lately about the compensation of executives of publicly owned companies in the United States, including how to control the size of executive salaries and termination payments. … A 2005 study by Lucian Bebchuk of the Harvard Law School and Yaniv Grinstein of the Cornell University School of Management found that the aggregate compensation of the top five executives of all of the publicly owned companies in the United States from 2001 to 2003 was $92 billion, and that the ratio of the aggregate top-five compensation to the aggregate earnings of these companies increased from 5 percent of earnings in 1993 to 1995 to 10 percent in 2001 to 2003.
Can CEO Pay be Brought Down to Earth?, Associated Press, February 9, 2007.
Frank pointed to research done by Harvard professor Lucian Bebchuk showing that compensation of the top five officers at the country's public companies between 1993 and 2002 totaled about $250 billion - nearly 10 percent of aggregate profits. CEO pay grew by a median 11.29 percent in 2005, according to The Corporate Library, which tracks governance, compensation and performance. Bebchuk, co-author of the book "Pay Without Performance: The Unfulfilled Promise of Executive Compensation," has become a frequently-cited source for information in proxy pay proposals. He's also started filing proposals himself on director pay at companies including Walt Disney Co. and Northrop Grumman Corp.
Roadblocks to Greater Say on Pay, New York Times, January 21, 2007.
After receiving a proposal from Lucian Bebchuk, director of the Program on Corporate Governance at Harvard, Home Depot recently changed its bylaws to require that any decision relating to compensation of the company's chief executive be approved by two-thirds of the independent directors of its board. "It would be desirable to ensure," Mr. Bebchuk's proposal stated, "as the proposed arrangement would seek to do, that the corporation does not provide a C.E.O. package that cannot obtain widespread support among the corporation's independent directors." ... Mr. Bebchuk has submitted similar proposals - requiring approval from three-quarters of the independent directors on chief executive pay - at the American International Group, Bristol-Myers Squibb and Exxon Mobil. It is not yet clear whether the proposals will be put to shareholder votes at those companies.
Power Pay: When the Game is Rigged in Favour of the Boss, The Economist, January 18, 2007.
Warren Buffett has repeatedly used his "letter" to Berkshire Hathaway's shareholders to complain about pay. The "boardroom atmosphere almost invariably sedates [directors'] fiduciary genes," he observed on one occasion. "Collegiality trumps independence." In 2003, with the scandals of WorldCom and Enron still smouldering, the great investor issued a challenge to directors across the country. "In judging whether corporate America is serious about reforming itself, CEO pay remains the acid test," he wrote. "To date, the results aren't encouraging." … The board's inability to stand up to the incoming chief executive is an example of a more general spinelessness documented by Lucian Bebchuk and Jesse Fried, of Harvard Law School and the University of California at Berkeley. Boards are agents, too, and Messrs Bebchuk and Fried believe that their interests are more closely aligned with those of powerful executives than with those of the owners they are supposed to represent. As a result, the bargaining over pay is not at arm's length and boards conspire with executives by providing all sorts of "stealth pay" that disguises the true extent of their rewards.
CEO Pay Goes for the Platinum Helicopter, Sydney Morning Herald, January 15, 2007.
Professor Lucian Bebchuk, director of the Harvard Law School's program on corporate governance, has studied the granting of backdated options and excessive executive pay. He found that both were linked to governance problems in companies. In a study with Yaniv Grinstein called Lucky CEOs, Bebchuk found that so-called lucky grants of options - those where backdating had not been proved, but where the options were granted on a day when the share price was low - were linked to companies where the board lacked a majority of independent directors.
Study Links Options Backdating to Corporate Governance Weaknesses, Social Funds, January 12, 2007.
Now Harvard Professor Lucian Bebchuk and colleagues have taken the next step of correlating option manipulation with corporate governance strength (or, more precisely, weakness.) This is the same connection asserted by the socially responsible investing (SRI) community in demanding option expensing as a form of strong governance. Also, Prof. Bebchuk and Yaniv Grinstein from Cornell and Urs Peyer from INSEAD introduce a new method for identifying what they facetiously call "lucky" options--those granted at the lowest price of the month (and hence guaranteed to rise in value.)
How Apple Got Tangled Up with Options, Time, January 11, 2007.
Anyone familiar with Macworld knows that Steve Jobs is secretive. It's part of his allure. But that mystique has taken a hit over revelations that the company backdated options. ... Apple is hardly alone in backdating. Nearly 30% of U.S. companies manipulated options grants to executives between 1996 and 2005, and more than 200 companies have been implicated in options scandals. "Opportunistic timing in options is not unique," notes options expert Lucian Bebchuk, director of Harvard law school's program on corporate governance.
Apple Chief Benefited From Options, Records Indicate, Washington Post, January 11, 2007.
Apple Inc. chief executive Steve Jobs confirmed his place this week as the premier impresario of the Internet age, taking the stage in San Francisco to unveil a smart phone that won a raucous endorsement from thousands of fans in the audience and sent Apple stock rocketing to a record high... Lucian Bebchuk, director of Harvard Law School's program in corporate governance, said Jobs falls into a category of chief executives that Bebchuk has labeled "super-lucky." These are the people who have received stock options on dates representing the lowest price of the financial quarter. "He has some company. He is not the only one to be as fortunate," Bebchuk said. He and his fellow researchers found in a study released two months ago that about 1,000 CEO grants from 1996 to 2005 fell into this category. For most of these options, he said, the dates were more likely to have been the result of "manipulation" rather than good fortune.
Stock Options Backdating Issue Haunts Jobs, USA Today, January 9, 2007.
When Steve Jobs steps to the podium Tuesday at the Macworld Conference here to introduce what is expected to be the newest Apple iPod, he won't be just another CEO hawking a fad product. ... According to data from Thomson Financial, Jobs has never sold shares of Apple stock for profit. His one sale of stock last March - in which he returned 4.5 million shares to the company for nearly $300 million - was to satisfy tax withholding requirements. But Lucian Bebchuk, director of Harvard Law School's program on corporate governance, says that Jobs clearly gained from the favorable backdating. Even if one accepts Apple's explanation that Jobs didn't benefit because his options were canceled, the options' replacement with a grant of restricted stock meant they were worth something, Bebchuk says.
Is Legendary Apple CEO on the Way Out?, Boston Globe, January 8, 2007.
Apple Computer Inc.'s chief executive, Steve Jobs, is expected to captivate an audience of thousands at San Francisco's Moscone Convention Center tomorrow as he unveils Apple's newest products at the company's annual trade show. ... Jobs's renowned perfectionism and his love of elegant design are credited for most of the company's success. That's why Apple investors and the company's board are desperate to shield Jobs from the scandal, said Lucian Bebchuk, director of the Program on Corporate Governance at Harvard Law School. ... "It's clear that the board very much wanted him to stay," Bebchuk said. "The market likes an outcome under which he can stay."
Inside Jobs, Wall Street Journal, January 6, 2007.
An op-ed by Professor Lucian Bebchuk: Apple Computer announced a week ago the conclusions of a special board committee that examined the "improper dating" of over 6,000 option grants during 1997-2002. The committee found no basis for having less than "complete confidence in [CEO] Steve Jobs and the senior management team," placing full responsibility for past problems on the company's former CFO and general counsel. But the company's report fails to dispel concerns about Apple's governance.
It Pays to Simplify Boardroom Compensation, Financial Times, January 5, 2007.
Investors should be forever grateful to Robert Nardelli, the chief executive of Home Depot who has just walked off with a $210m severance package in exchange for years of lacklustre share price performance. For while it is galling to see failure so handsomely rewarded, he has at least demonstrated beyond all doubt how the arguments used by corporate America to justify the stock options culture are palpable nonsense... A final myth is that stock options have no cost. They do. It consists of the amount the company gives up by not selling the options to outside investors. Happily, accountancy is finally recognising this reality. Lucian Bebchuk and others at Harvard have shown that the cost has been very significant in relation to profits.
An Ousted Chief’s Going-Away Pay Is Seen by Many as, Typically Excessive, New York Times, January 4, 2007.
Robert L. Nardelli's rich compensation and poor performance at Home Depot have long been cited by shareholder activists as a prime example of what they view as excessive executive pay. ... "The company is big, the underperformance is significant and the numbers are very large," said Lucian Bebchuk, a Harvard Law School professor who is an outspoken critic of executive pay. "But each of the pieces that lead to the decoupling of pay from performance are very common to the executive compensation landscape."
America's CEO Pay May Soon Face Squeeze, The Christian Science Monitor, January 4, 2007.
The pay packages of America's CEOs still include enormous stock options, rich pensions, and other perks of a Learjet lifestyle. But pressure from investors and regulators is exerting some new restraint on controversial compensation practices. ... During the years 2000-02, those executives took home 12.8 percent of company profits, a figure that has since edged down a bit, according to research by Lucian Bebchuk of Harvard University and Yaniv Grinstsein of Cornell University.
Civility at Harvard, Corporate Board Member Magazine, January 3, 2007.
Intellectual wrangling is the norm at Harvard, and it's not uncommon for professors to continue arguing the finer points of issues that they've debated for years. So it's news of the man-bites-dog variety that two of the biggest names on the faculty, on opposite sides of a particular issue, decline to be drawn into a spat. In one corner is the business school's Jay W. Lorsch, 74, whose off-campus work includes board service at CA, formerly Computer Associates, a software company that was hit by a major accounting scandal in 2004. In the other is the law school's Lucian A. Bebchuk, 51, a part-time corporate reformer whose target list includes CA. In 2006 Bebchuk proposed a bylaw change that, among other things, would require a unanimous vote by CA directors to extend the life of a poison pill.
The 'Corporate Democracy' Oxymoron, Wall Street Journal, January 2, 2007.
The SEC is huddling on whether to facilitate direct shareholder nomination of directors through a new interpretation of its shareholder proposal rule. A prominent professor at Harvard Law School, Lucian Bebchuk, proposes, among other democratizing moves, amending state corporation laws to encourage contested elections for board members. There is ongoing controversy about whether mutual funds are making sufficient disclosure to investors of how they vote on various portfolio corporate matters. And European corporate governance circles are in a dither because the EU failed in a recent directive to qualify the usual one-share-one-vote rule with something approaching one-shareholder-one-vote. The list could be expanded considerably. (Subscription required.)
Compensation Experts Offer Ways to Help Curb Executive Salaries, New York Times, December 30, 2006.
Executive compensation issues are tricky; the devil is often deep in the footnotes of proxy statements, employment agreements and stock option plans. It will take a concerted effort by both investors and boards to effect real change. Otherwise, lawmakers have threatened to get involved. "It's not like Iraq, where everybody says it is bad, but nobody says what to do," said Lucian Bebchuk, a Harvard Law School professor who has been an outspoken critic of executive pay. "The problem is making the process and the people who play a key role in making the decisions want to make improvements."
Just Capitalism, The Washington Post, December 22, 2006.
What proportion of bosses' pay should be regarded as excessive? In a paper published last year, Harvard's Lucian Bebchuk and Cornell University's Yaniv Grinstein take a careful look at this question. They begin by noting that executive pay was already raising eyebrows back in 1993 and that it has nonetheless grown mightily since then. Then they observe that sales and profits of top companies have risen, which would tend to cause the bosses' pay to rise in tandem; and that an increasing share of the top companies are new-economy outfits, which tend to pay more. By analyzing the statistical relationship between executive pay and firms' size, profits and product mix, Mr. Bebchuk and Mr. Grinstein calculated how much compensation could have been expected to rise between 1993 and 2003. Their result: In 2003 the top five executives at the average public company could have been expected to earn a collective $6 million-but they actually received almost twice that.
Sarbanes-Oxley stifling? Say it with a straight face, Houston Chronicle, December 21, 2006.
Just nine months after the practice of backdating options for executives became the latest business scandal, a study released Monday found backdating extends to company directors as well. ... The study, which was sponsored by the Harvard Law School Program on Corporate Governance, explains in part why executive backdating was so prevalent. Directors, the guardians of shareholder interest and the people who are supposed to monitor executive pay, were taking their own turn at the trough.
Will Backdating Scandal Thwart Effort to Roll Back Reforms?, Wall Street Journal, December 20, 2006.
Clearly, something's amiss in the orchard. A new study out this week helps explain what that might be. Three scholars -- Lucian Bebchuk, Yaniv Grinstein, and Urs Peyer -- have run the numbers on 29,000 grants of stock options to directors, and found that 9% of them were "lucky" -- that is, they occurred on a day when the stock price hit a monthly low. "Lucky" is in quotes, because the authors clearly believe that many, if not most, were the result not of luck but of backdating.
US Options Scandal Derails S&N Deal, The Guardian, December 19, 2006.
Clearly, something's amiss in the orchard. A new study out this week helps explain what that might be. Three scholars -- Lucian Bebchuk, Yaniv Grinstein, and Urs Peyer -- have run the numbers on 29,000 grants of stock options to directors, and found that 9% of them were "lucky" -- that is, they occurred on a day when the stock price hit a monthly low. "lucky" is in quotes, because the authors clearly believe that many, if not most, were the result not of luck but of backdating.
Outside Directors' "lucky" Days, The Red Herring, December 18, 2006.
Many outside directors have been feasting alongside corporate executives on backdated options, according to an academic study released Monday. The report found that 9 percent of all option grants to outside directors from 1996 to 2005 fell on days when the company's stock price fell to a monthly low. The study, by professors at Harvard and Cornell universities and the French business school Insead, concluded that the "lucky grant events" could not be accounted for by chance.
Backdating Not Limited To Execs: Study, Securities Law360, December 18, 2006.
"This paper shows that opportunistic timing problems have not been limited to executives' grants, as has been thus far assumed, but rather have also affected outside directors' grants," wrote co-authors Lucian Bebchuk of Harvard Law School, Yaniv Grinstein of Cornell University and Urs Peyer of Insead business school in France.
Get Ready For A Red-Hot Proxy Season, Forbes, December 18, 2006.
If the 2006 proxy season felt dramatic, just wait until spring. The folks with their fingers on the pulse of big shareholder groups have already identified the top five areas of activity this year: majority voting, executive compensation, board declassification, poison pill elimination and activist hedge funds. ... Meanwhile, the movement toward board declassification has gathered so much momentum that Connolly advised companies not to waste their resources fighting it. Already, 53% of publicly traded companies have declassified boards, and last year saw 94 proposals. Academic studies by Harvard's Lucian Bebchuk and others correlate staggered boards with lethargic stock performance, and shareholders have taken notice. Connolly thinks they have simply concluded that a classified board has no benefits for them as owners.
'Lucky' Grants Point to a Deeper Governance Malaise, Financial Times, December 18, 2006.
More than 130 companies are under scrutiny in the US for alleged backdating of stock options and dozens of executives have lost their jobs, but the significance for the corporate governance system is in dispute. To what extent has backdating been the product of systemic problems? Is it relevant for the future or only for the past? Our empirical work on backdating (co-authored with Yaniv Grinstein) suggests this practice deserves all the attention it has been getting and more.
Study Cites Role Outside Directors Had With Options, Wall Street Journal, December 18, 2006.
A new academic study suggests that many outside directors received manipulated stock-option grants, a finding that may help explain why the practice of options backdating wasn’t stopped by the boards of some companies. The study is notable because it suggests that outside, or independent, directors -- who are supposed to play a special role safeguarding against cozy board relationships with management -- may have been co-opted in options backdating by receiving manipulated grants themselves. The New York Stock Exchange requires that a majority of board seats, and all compensation- and audit-committee members, be independent. The study doesn’t address whether directors were aware that their options were propitiously timed… Lucian Bebchuk, a law professor at Harvard, said the study didn't calculate how much extra money outside directors may have received by exercising options with fortuitous grant dates. "We don’t expect the numbers to be very large," he said. "Directors don’t get very large grants."
Study Finds Outside Directors Also Got Backdated Options, New York Times, December 18, 2006.
Board members were not just blissfully ignorant or willfully blind bystanders when they backdated stock option grants for corporate executives, according to a new study. Some 1,400 outside directors themselves may have received manipulated grants over the past decade. The research, to be released today, sheds new light on the stock options manipulation that has entangled more than 120 companies in a nationwide scandal. It suggests that what has been widely seen as a dot-com phenomenon to enrich managers in the executive suite probably extended to directors in the boardroom as well. The study, sponsored by the Harvard Law School Program on Corporate Governance, also raises serious questions about corporate governance if the outside directors, who are supposed to act as a final backstop against bad practices, received — and in many cases may have even approved — fraudulent option grants. "Opportunistic timing of directors’ grants is unlikely to have large dollar significance," said Lucian A. Bebchuk, a Harvard Law School professor who is one of the study’s three authors. "But it has a large governance significance."
'Lucky' Stock Options Not Limited to Executives, Washington Post, December 18, 2006.
Chief executives weren't the only ones enjoying near-guaranteed profits from stock options in the past decade. Outside directors at hundreds of American companies also received option grants that are likely to have been manipulated, a new study found. According to the study, 9 percent of 29,000 option grants to outside directors from 1996 to 2005 were granted on a day when the company stock price was at a monthly low. The likelihood of such a concentration of "lucky" grants is so low as to be statistically impossible, the study’s authors said. "It’s like going to Vegas thousands of times and betting on red every time and winning more than half the time,’ said Lucian Bebchuk, the Harvard University professor who co-authored the report, titled "Lucky Directors," with Cornell University’s Yaniv Grinstein and Urs Peyer, a professor at the French business school Insead. "From a numerical standpoint, it can’t be random. There has to be some manipulation of the outcome."
Doubt Cast on Stock Options of Directors, LA Times, December 18, 2006.
Nearly 1,400 corporate board members appear to have profited from the manipulation of stock option grant dates over a 10-year period, according to a study being released today. The analysis raises the possibility that hundreds of board members were aware that options were backdated to boost their value to themselves and company executives. That could be seen as a conflict with their role as advocates for all company shareholders. "Rather than merely failing to notice or stop the manipulation of executives’ grants, many outside directors have received manipulated option grants and thus directly benefited from the manipulation practices," according to the study by Harvard professor Lucian Bebchuck and two other scholars.
Study Links Directors to Options Scandal, Financial Times, December 18, 2006.
More than 1,000 directors of US companies have benefited from the controversial practice of backdating stock options to boost their pay, according to new research set to open another front in a scandal that is spreading rapidly across corporate America…The study by three academics - to be published today- is the first to provide evidence that options of outside directors were backdated in the same way as the ones awarded to chief executives. It could prompt regulators and companies to widen their probes to include backdating by directors. The study, by Harvard Law School's Lucian Bebchuk, Cornell Universit’s Yaniv Grinstein, and Insead’s Urs Peyer, found that about 1,400 directors at 460 US companies benefited from stock options backdated to the lowest price in a monthly period. (Subscription required.)
Options Backdating Frequent, Report Says, Associated Press, December 18, 2006.
About 1,400 corporate directors received option grants whose timing was manipulated, according to an academic study released Monday. Of all options grants to directors, about 9 percent were received at "lucky" times _ when the stock price was equal to a monthly low, according to a Harvard Law and Economics paper released Monday. After studying the period form 1996 to 2005, academics at Harvard Law School, Cornell University and INSEAD in France estimated that about 800 lucky grant events were the result of opportunistic timing. The report was written by Lucian Bebchuk at Harvard, Yaniv Grinstein at Cornell and Urs Peyer at INSEAD.
Firm Rewards CEO for Paying Off His Debt, Houston Chronicle, December 14, 2006.
How about a bonus for paying off your debt to the company? That’s the unusual compensation arrangement Speedway Motorsports Inc. set up for its chief executive. Part of Chairman and Chief Executive O. Bruton Smith’s $1.45 million bonus for 2006 was based on the fact that he repaid some of the money he’s owed his company for at least four years, according to a recent filing with the Securities and Exchange Commission. This has compensation experts puzzled. … Lucian A. Bebchuk, Harvard Law School professor and director of its corporate governance program, said that he had never encountered an executive bonus that took into account the recipient’s payback of loans, and he called individual debt reduction "a very funny performance measure."
Study Ties CEO's Clout, Backdating, The Atlanta Journal-Constitution, December 14, 2006.
Corporations that systematically backdated stock options were headed by strong chief executives who influenced boards that had a minority of outside, or independent, directors, a new Harvard Law School research report suggests. … "We estimate that about 10 percent of all CEOs and about 12 percent of all companies engaged in backdating," research leader Lucian A. Bebchuk said in a telephone interview. The options were usually dated from the stock’s lowest price in the grant month, but about 43 percent of the grants studied were awarded from the lowest price of the quarter, the research found…But historically, backdating was an issue waiting to surface as a controversy. It was discovered in the 1990s by academic researchers who noticed that the coincidence of options grants to subsequent share price gains of certain executives was statistically suspect. And that's basically what Bebchuk and his researchers — Yaniv Grinstein and Urs Peyer — looked at. They studied the options practices of 6,000 public companies from 1996 through 2005.
The FSA may be no Easy Pushover for Nasdaq, Financial Times, December 10, 2006.
Most of the corporate scandals arose – with the notable exception of Enron – at companies where the roles of the chief executive and chairman were combined. The imperial CEO’s accountability to shareholders is weak. Huge stock option grants, which provided these individuals with an increased incentive to cook the books, were not subject to a UK-style shareholder vote. Meanwhile, a new Harvard paper by Lucian Bebchuk, Yaniv Grinstein and Urs Peyer tells us that "lucky grants" of backdated options were more likely when the company lacked a majority of independent directors and/or the CEO had longer tenure – factors both associated with increased influence of the CEO on pay-setting and board decision-making. Not all the news is bad, though. The Scott Committee on capital markets regulation last week retracted its endorsement of ballot stuffing by brokers in director elections, under pressure from its more shareholder-friendly members. And its other proposals on shareholder rights will be hard to ignore.
'Lucky' Option Grants Detailed; Study Points to Manipulation, Boston Globe, December 9, 2006.
About 1,150 options granted to chief executives at the lowest stock price of the month were the result of manipulation, according to estimates in a Harvard Law and Economics paper released yesterday. The study looked at "lucky" grants, which it defined as grants given to chief executives at a stock's lowest price for the month...The study was done by Lucian Bebchuk of Harvard Law, Yaniv Grinstein of Cornell University, and Urs Peyer of the INSEAD business school in France.
CEO Thievery Triggers Shareholder Outrage, Investment News, November 27, 2006.
Meanwhile, an independent board reduced by 33% the chance that a company would be involved in the backdating of stock options, the study concluded. The study, by Harvard University professor Lucian Bebchuk, Ithaca, N.Y.-based Cornell University professor Yaniv Grinstein and visiting University of Chicago professor Urs Peyer, examined stock grants between 1996 and 2005. It's the latest in a series of papers by academic and governance research groups that attempt to measure the extent of the backdating scandal and to explain how it spread.
Is Blackstone Setting a Bridge Too Far?, Wall Street Journal, November 25, 2006.
Harvard professor Lucian Bebchuk, a critic of executive compensation trends, calculates that senior managers receive up to 10% of after-tax profits in any single year. On this arithmetic, companies could save as much by outsourcing 100 top management jobs to India as by eliminating 10,000 workers. But America's club of corporate executives won't be looking too closely at this form of outsourcing.
Backdated Awards Added 10% to Executive Pay, The Independent, November 18, 2006.
Lucky CEOs, a paper by Lucian Bebchuk, Yaniv Grinstein and Urs Peyer, examined the effect of particularly suspicious, or "lucky", share options grants. The authors say it is wrong to assume that options backdating has been a technical or trivial issue. "We estimate the average gain to chief executives from grants that were backdated to the lowest price of the month to exceed 20 per cent of the reported value of the grant. The gain increases the CEO's total reported compensation for the year by more than 10 per cent."
Study Charts Broad Manipulation of Options, New York Times, November 17, 2006.
Abuses of stock option grants are perceived to have spread like a virus among high-technology companies. But a new study suggests that hundreds of old-economy companies may also have caught the backdating bug. ... "It is not the case that people should concentrate on new-economy firms," said Lucian Bebchuk, a Harvard Law School professor and director of its corporate governance program. "That is the impression that one might get from the cases that have come under scrutiny thus far." Professor Bebchuk co-wrote the study with Yaniv Grinstein, a Cornell University professor, and Urs Peyer of the French business school Insead. It is to be posted today on the Web site of the Harvard Law School corporate governance program.
Backdated Options Pad CEO Pay By Average of 10%, Wall Street Journal, November 17, 2006.
About 850 U.S. chief executives received backdated or otherwise manipulated stock option grants that boosted their annual pay, on average, by at least 10%, according to a new study. ... The researchers also found that executives who reaped riches from backdating options started out with reported compensation that was richer than their peers at similar companies. On top of that above-average pay, executives received an average of an extra $1.3 million to $1.7 million through each manipulated grant, the academics found. "It's not pocket change," said Lucian Bebchuk, a professor of law, economics and finance at Harvard and one of the study's authors.
More Than Backdating in Common, Washington Post, November 17, 2006.
Companies that lacked a majority of independent board members and that had long-serving chief executives were more likely to award questionably timed stock options to senior executives, according to a study to be released today. ... In addition, Harvard University professor Lucian Bebchuk said, companies in the study that were implicated in backdating already paid their top executives high cash compensation, which was increased by backdated options by more than 10 percent a year on average.
A Board Link to Option Timing, Los Angeles Times, November 17, 2006.
Backdating of stock options was more likely to occur at companies that did not have independent board directors in the majority, according to a study being released today. ... An independent board - one on which the majority of members were not insiders nor had other business dealings with the company - reduced by 33% the chance that a company would provide lucky grants to its chief executives, said Lucian Bebchuk, a Harvard professor and a coauthor of the report.
Study Hits Out at Options Practice, Financial Times, November 17, 2006.
The controversial practice of backdating stock options to boost executive pay went hand-in-hand with poor corporate governance practices and overbearing chief executives, according to a study published today. The research is the first to posit a link between lax internal controls and stock options backdating. The scandal has so far engulfed more than 130 US companies in internal and regulatory probes but the study suggests that number could eventually climb to 720…"These findings are consistent with the view that grant date manipulation reflects governance problems rather than a compensation device used for valid business reasons," conclude the report’s authors - Harvard Law School’s Lucian Bebchuk, Yaniv Grinstein from Cornell University and INSEAD’s Urs Peyer."
A Republican Senator's Corporate Misdeeds, AlterNet, November 9, 2006.
Stock options, a controversial form of director compensation, are designed to encourage future risk taking and align the interest of the director with the interests of the shareholder,says attorney Beth Young, a corporate governance expert now lecturing at Harvard Law School. Re-electing a director who might have to resign within weeks is a little unusual,she says, and granting him additional options prior to his anticipated departure at an early annual meeting is very unusual.
Sarbanes-Oxley Likely To Stand With Democrats, Investor’s Business Daily, November 8, 2006.
Regulatory changes, however, are unlikely to be sweeping or surprising, observers said, as legislators have already tipped their hand by introducing policies to regulate hedge funds and expose excessive executive compensation. "My assessment is that it's not going to create a major shift," said Lucian Bebchuk, director of the Harvard University Program on Corporate Governance. However, Democrats will be able to slow the momentum for rolling back previous reforms, he said.
Investors Press Their Demands, National Law Journal, October 9, 2006.
In another high-profile ballot-access case claimed as a shareholder win, the plaintiff was shareholder-power advocate Lucian Bebchuk, a Harvard Law School professor and director of Harvard's Program on Corporate Governance. As a shareholder of CA Inc., formerly Computer Associates, Bebchuk proposed a bylaws amendment involving the way the company adopts a poison pill. The company declined to put the proposal on the proxy, saying that the bylaw would violate Delaware law.
Activist Shareholders Outfoxing Top Execs, Investor's Business Daily, October 2, 2006.
The growing power of shareholders in takeovers was highlighted in September when Harvard Law School professor Lucian Bebchuk persuaded the Delaware Chancery, the most sophisticated corporate law court in the U.S., to let him include a proposal on the proxy of computer services giant CA, (CA) formerly Computer Associates. Bebchuk, holding just 140 CA shares, wanted to change the company's bylaws so that poison pills would require shareholder approval or unanimous board approval.
HP spying scandal back in the spotlight, Financial Times, September 27, 2006.
Lucian Bebchuk, a professor at Harvard Law School, says efforts to clear the air have been complicated by Mr Hurd's decision to engage Morgan Lewis, attorneys, to lead an investigation into the scandal. Mr Hurd surprised observers last week when he announced that the firm's investigation had been reporting to him, rather than to the HP board. Prof Bebchuk says that Mr Hurd's decision to have the investigation report to him when the questions remain about the extent of his involvement in the scandal presented a conflict of interest, even if he felt he had no choice in the face of a dysfunctional board.
Ruling May Open Access to Proxies, LA Times, September 8, 2006
This can make a significant difference in the process of corporate elections, making them somewhat more real than they have been in the past," said Lucian Bebchuck, a Harvard professor who specializes in corporate governance issues. "It makes it possible to remove directors without expending huge costs.
Executive Pay Practices Under Scrutiny, BusinessWeek, September 5, 2006.
The end run around Section 162(m) may have cost the federal government billions of dollars in lost taxes since the rule was enacted 13 years ago. Harvard Law School Professor Lucien Bebchuk estimates that forgone taxes as a result of widespread abuse of 162(m) has cost the U.S. Treasury at least $20 billion. "The numbers are gigantic," he says.
New Rule to Expose Pay Packages, USA Today, July 27, 2006.
"The iceberg of retirement benefits will very much come to the surface," says Harvard University law professor Lucian Bebchuk, co-author of the book Pay Without Performance and a critic of "stealth compensation" he sees in the form of deferred compensation, pensions and assorted perks.
More Data on Pay at the Top Is Mandated, LA Times, July 27, 2006.
"Paradoxically, it will seem as if pay levels are going up and there is an increase in performance-decoupled pay," said Lucian Bebchuk, a professor at Harvard Law School. "That's not because things are getting worse. We are just going to learn about things that have been bad for some time. They will come to the surface."
Retaking the High Ground, Investment Dealers' Digest, July 24, 2006.
The short-term versus long-term debate is sometimes not as clear-cut as it seems. For example, Lucian Bebchuk, a professor at Harvard University, has advocated majority voting instead of the plurality vote that many US companies have. He argues that it is easier to manipulate the outcome of a vote in a plurality system, in which a director can be elected with as little as one vote. Majority voting, on the other hand, would help ensure that the goals of activists were aligned with other shareholders, since a large block would have to be convinced that the new way makes sense.
Bebchuk's Crimson Tirade, Institutional Investor, July 15, 2006.
For two decades, Harvard Law professor Lucian Bebchuk has been an outspoken voice for shareholder rights, railing in books and interviews against the excesses of entrenched corporate executives and directors. Now he's no longer just a commentator - he's a combatant.
What the boss makes; Compensation By the numbers, Seattle Times, July 9, 2006.
"Flawed compensation arrangements have not been limited to a small number of 'bad apples'; they have been widespread, persistent and systemic," wrote professors Lucian Bebchuk of Harvard Law School and Jesse Fried of the Boalt Hall School of Law at the University of California, Berkeley, who co-authored "Pay Without Performance: The Unfulfilled Promises of Executive Compensation."
CA to Add Shareholder Proposal to Proxy, Associated Press, June 27, 2006.
The Islandia, N.Y., technology company originally denied a request to add the proposal to its upcoming proxy statement, claiming the proposal was a violation of Delaware law. The rejection resulted in a court challenge by the drafter of the resolution, Harvard professor and shareholder rights activist Lucian Bebchuk.
Sky-High Payouts To Top Executives Prove Hard to Curb, Wall Street Journal, June 26, 2006.
Yet, because CEOs have influence over who gets on the board -- the only board slate offered to shareholders is the one proposed by management - directors are careful not to offend them. "Displeasing the CEO hurts one's chances of being put on the company slate, so directors have an incentive to support or at least go along with pay arrangements that favor top executives," says Lucian Bebchuk, a Harvard University law school professor and co-author of "Pay Without Performance." "They don't have an incentive to change those arrangements."
Judge Won't Settle CA Poison Pill Dispute, Associated Press, June 23, 2006.
Harvard corporate governance expert Lucian Bebchuk wants to amend CA's bylaws to require a unanimous vote by the board of directors to adopt or extend a "poison pill" antitakeover plan, and to set a one-year expiration date for any such plan. Any attempt to repeal or amend the bylaw also would require a unanimous board vote.
What Price Talent? Why US investors are now less content to hail the chief, Financial Times, June 16, 2006.
But academic and empirical evidence suggests that this ideal can be difficult to realise, given the ties between independent directors and management. Professors Lucian Bebchuk and Jesse Fried, who analysed the issue in their book Pay Without Performance, concluded: "Compensation arrangements have often deviated from arm's length contracting because directors have been influenced by management, sympathetic to executives, insufficiently motivated to bargain over compensation or simply ineffective."
Runners and Raiders: Companies are Under Attack Again, This Time from Activist Hedge Funds that Want to Enrich Shareholders, Not Chief Executives, Financial Times, June 10, 2006.
For Lipton, the lessening stigma is partly a consequence of the efforts by some academics and unions to shift the nature of US companies from a "director-centric management system" to a "shareholder-centric" one. This movement, best illustrated by the work of Professor Lucian Bebchuk at Harvard, threatens to replace the "imperial chief executive" with the "imperial shareholder", says Lipton. Combined with the reaction to the wave of corporate scandals at the end of the stock market boom and media coverage of soaring executive pay, their efforts "provide wonderful cover" for activist shareholders. Lipton fears it could ultimately lead to US companies becoming more like UK companies in terms of the active role of shareholders. This, in his view, would be "a disaster" for US companies and "for the economy as a whole".
Canada CEO Pay Doesn't Reflect Stock Performance, Wall Street Journal, June 1, 2006.
U.S. studies of executive pay have found some correlation between higher pay for top executives and better returns for investors, "although not as much as one would like," said Lucian Bebchuk, director of the Harvard Law School corporate governance program. In the U.S., "there is a similarly too-weak link between pay and performance," Prof. Bebchuk said.
Big Bonuses Still Flow, Even if Bosses Miss Goals, New York Times, June 1, 2006.
"Lowering the hurdles is especially disconcerting because very often the goals are not set all that high to begin with," said Lucian Bebchuk, professor at Harvard Law School and author with Jesse Fried of "Pay Without Performance." Mr. Bebchuk said shareholders should be especially alert to increases in bonuses because more companies were shifting away from stock options and into cash incentives
Pay in the U.S.: CEOs Take the Money and Run, Z Magazine, April 19, 2006.
According to a just
released study by professors Lucian Bebchuk of Harvard Law School and Yaniv Grinstein
of Cornell University, based on interviews of CEOs and top managers at the 1,500
largest publicly traded corporations in the U.S., the group of 5 top managers at
the corporations received collectively $122 billion in compensation between 1999-2003
compared to $68 billion for the same group during 1993-1997. On top of these 1999-2003
gains, the Harvard-Cornell study estimates another 39 percent increase in average
executive compensation in 2004 for the surveyed group of the largest corporations.
Gougers, National Journal, April 14, 2006.
That is a bad thing in itself -- and, fairness aside, the scale of the resulting misallocation
of resources is not small. An academic study published last year by Lucian
Bebchuk and Yaniv Grinstein in the Oxford Review of Economic Policy estimated
that from 2001 to 2003, the total pay of the five highest-earning CEOs of
public companies was equivalent to nearly 10 percent of the companies' earnings,
roughly double the share of earnings paid out that way from 1993 to 1995.
Pay on that scale, if it elicits no improvement in company performance, is
perceptibly depressing return on investment. That, as I say, is serious enough,
but a far larger cost comes in damage to the system's reputation.
Investors For Director Accountability Targets Pfizer, MarketWatch.com, April
doesn't face any shareholder proposals on CEO pay on its next proxy, the
preliminary version of its proxy did contain a proposal that urged the company
to let shareholders have more say over executive pay. The proposal focused
on pension issues, quoting a study by Harvard Law School Professor Lucian
Bebchuk that estimated that McKinnell has received about $67 million in total
compensation during his tenure as Pfizer's CEO. In contrast, the study estimates
the actuarial present value of McKinnell's expected pension benefit to be
approximately $71.5 million to $83 million.
Pay Soars in 2005 as a Select Group Break the $100 Million Mark, USA
April 10, 2006.
believe fundamental changes in the way CEOs are compensated won't occur until
corporate directors are held more accountable. "They're not sufficiently
dependent on shareholders, who lack real power to remove them from boards," says
Harvard University professor Lucian Bebchuk, who decries the lack of connection
between pay and performance and is pushing for bylaw changes at several firms.
No point griping about CEO pay, The Capital, April 10, 2006.
An oft-cited study by Lucian Bebchuk of Harvard University and Yaniv Grinstein of Cornell University has established that top U.S. executives are clearly taking home a bigger share of the profits at their companies. Mr. Bebchuk and Mr. Grinstein found that the aggregate pay of the top five executives at U.S. companies amounted to 10 percent of the combined earnings at those companies between 2001 and 2003, double the rate of take-home pay eight years earlier.
on Pay Could Be a Wild Card, New York Times, April 9, 2006.
Lucian A. Bebchuk,
the director of the corporate governance program at Harvard Law
School who has been sharply critical of many compensation practices, says
that at the very least, the near term will reveal more exorbitant pay packages,
and that this may provoke a reaction from large shareholders.
CEO PayWatch Website Offers Sneak Peak at Top 25 Super-Pensions and Publishes
Comprehensive New Data on 2005 CEO Pay, Aflcio.org, April 6, 2006.
the groundbreaking research of Harvard Law Professor Lucian Bebchuk, the
average CEO pension equals more than one third of his or her total compensation.
These under-the-radar pensions undermine the goal of linking pay for performance.
Data on Executive PayWatch provides concrete examples of how excessive CEO
pensions can undermine this goal. Pfizer CEO Hank McKinnell's pension is
at the top of the list, with the choice of over $6.5 million annually or
a lump sum payment of $83 million in cash. Yet under McKinnell's leadership,
Pfizer's stock price underperformed for the last five years; between 2000
and 2005 share value plummeted by nearly half.
Calculating Compensation, Financial Times, April 6, 2006.
In Pay without Performance, Lucian Bebchuk and Jesse Fried examine the issue by comparing executives with star athletes. They argue that while compensation for the latter reflects individual skill and performance, the same rationale should not be applied to executives.
Activism's Latest Weapon, Wall Street Journal, April 4, 2006.
the power of this rarely used weapon, Lucian Bebchuk, a Harvard law professor
best known for opposing high executive pay, has targeted eight companies
with bylaw amendments this year. Three companies -- American International
Group Inc., Bristol-Myers Squibb Co. and Time Warner Inc. -- already have
accepted his proposals or variants. Five others are opposing his proposals,
so shareholders will vote on them this spring.
Compensation Linked to Good Corporate Governance, Oil & Gas Financial
Journal, April 4, 2006.
Writing in the Wall
Street Journal in mid-January when the SEC was taking its initial action to require
more information, the head of the Harvard Law School's corporate governance program,
Lucian Bebchuk noted billionaire Warren Buffett's observation that executive
compensation is the "acid test" of corporate governance. Then, Bebchuk concluded
in a column lauding the SEC's latest efforts that more disclosure will only emphasize
that much work remains to be done to fix executive compensation.
Shareholders at the Gate, Boards Bow to Activist Pressure as Proxy Season Looms, MarketWatch, March 3, 2006.
The present value of McKinnell’s pension is between $71.5 million and $83 million, according to a study by Harvard Law School Professor Lucian Bebchuk that the AFL-CIO cited in its proposal. That exceeds the $67 million that McKinnell has earned while working at Pfizer.
The AFL-CIO is demanding that Pfizer seek shareholder approval for any senior executive retirement package that exceeds what they earned while working for the company.
the Blind See Better, Forbes, February 13, 2006.
compensation for the heads of America's 500 biggest companies increased by
54% in 2004. Harvard professor Lucian Bebchuk's calculations show that the
top five executives now collect 10% of the average big firm's net income,
double the percentage a decade ago. This is a problem that affects not just
morale but competitiveness.
The New Yorker, February 6, 2006.
In part, executive
compensation matters to investors because executives now take so much money
out of corporations every year. According to the economists Lucian Bebchuk
and Yaniv Grinstein, between 1993 and 2003 the top five executives at fifteen
hundred companies in the U.S. were paid three hundred and fifty billion dollars.
That level of pay makes sense only if it leads to better performance. But plenty
of executives are getting superstar pay for journeyman work. For one thing,
executives are rewarded far more for good luck in their industry (like rising
oil prices that they had no control over) than they are punished for bad luck,
according to a study by the professors Gerald Garvey and Todd Milbourn. Though
most of their pay is now in the form of stock or stock options, C.E.O.s' cash
salaries have also risen sharply over the past decade; in 2005, the average
C.E.O. got paid millions literally just for showing up. And lavish perksranging
from personal use of the corporate jet to having the company cover the C.E.O.'s
income taxes--remain ubiquitous.
Different Kind of Carrot for our Bosses, Canberra Times, February 2, 2006.
What this means is
that executive pay practices in Australia are increasingly moving along US lines,
where commentators point to a large "decoupling" of pay from performance.
In Pay without Performance: The unfulfilled promise of executive compensation (Harvard
University Press, 2004), prominent US law professors Lucian Bebchuk and Jesse Fried
point out that in their country, between 1991 and 2003 the average CEO remuneration
increased from 140 times the pay of an average worker to 500 times average pay.
Academic Roundup, Manifest-I, February 2, 2006.
Executive Pensions, by Lucian A Bebchuk, Harvard Law School; and Robert J Jackson, Jr, Program on Corporate Governance. NBER Working Paper No. 11907: The authors examine executive pensions in the US and suggest the omission of such figures by the majority of financial economists has led to a sizeable underestimation of executive remuneration.
up with Mr. Jones, CEO, TCSDaily.com, January 24, 2006.
While more disclosure
is nice, and the goal of increasing market transparency is even nicer, the
new SEC rule also places an enormous burden on shareholder activists. After
all, if shareholders (the rightful owners of the company) realize that they
are being ripped off, they must be prepared to discipline the CEO by applying
pressure on the board of directors. However, even if shareholders receive comparable,
side-by-side numbers on executive compensation, will they really be able to
discipline any corporate board that approves an outrageous compensation scheme?
Worse yet, if you buy into the "managerial power" model advanced
by Bebchuk and Fried, which basically states that managers have stacked the
compensation deck in their favor by de-coupling pay from performance and tainting
the overall compensation process, board directors are powerless to stop CEOs
from pushing through ever-higher compensation packages.
Must Come Clean on Executive Pay, U.K. Sunday Times, January
The first is
the lack of transparency. It is virtually impossible to determine from company
reports just how much executives are being paid. In part this is due to the
complexity of compensation packages, which include, in addition to ordinary
salary, pension plans that Lucian Bebchuk and Jesse Fried in their book Pay
Without Performance estimate can add more than a third to the total package;
the company's assumption of some of its executives' tax liabilities; and a
host of perks that are rarely mentioned.
Every Underachiever, An Overpaid Board?, New York
Times, January 22, 2006.
It is indeed
one of life's mysteries why so many institutional stockholders have stayed
silent on the subject of outrageous pay, lo these many years. We are talking
real money, after all: Lucien A. Bebchuk, professor of law, economics and
finance at Harvard Law School and director of its program on corporate governance,
said compensation paid to the top five executives at all public companies
in the three years ending in 2003 reached 10 percent of those companies'
Envy, Wall Street Journal, January 21, 2006.
get lectures about a new study from Harvard's Lucian Bebchuk and Cornell's
Yaniv Grinstein noting that, from 2001 to 2003, top executive compensation
amounted to 9.8% of the net income of 1,500 publicly traded firms. This is
thought to be . . . exorbitant.
Pay, Economist, January 19, 2006.
is rife in three areas in particular--pensions, perks and deferred pay--and
the SEC addresses all of them. The new rules will improve the disclosure
of top executives' retirement benefits. Currently, it can require an academic
study to work out the real figures. Research published last year by Lucian
Bebchuk and Robert Jackson of Harvard University put the median value of
the pension pots of a sample of top chief executives at $15m. Mr Bebchuk
says that companies' "massive use of defined-benefit pension plans [for
their top executives] has been partly motivated by a desire to provide chunks
of performance-insensitive pay under the radar screen."
What the Boss Really Makes, STL Today.com, January 18 2006.
The best part about
the SEC proposal is the improved summary compensation table. For the first time,
companies would have to show a total pay figure for five top executives, including
the value of stock options, any increase in pension value, and all perks over $10,000.
A study by Harvard professor Lucian Bebchuk indicates that pensions alone amount
to about 34 percent of a CEO’s total pay, and pensions are notoriously hard
to understand in the current disclosure format.
to Require More Disclosure on Executive Pay, New York Times, January 18, 2006.
effect will be that on the margin - and it is an important margin - there will be
a new so-called outrage constraint," said Lucian A. Bebchuk, the director of
the corporate governance program at Harvard Law School, who has documented how executive
pay is often hidden and has far outpaced compensation for other employees. "The
caveat is that even though there is an outrage constraint, shareholders have very
limited power to do anything about it."
Solving a $122 Billion Problem, Fortune, January 17, 2006.
What's more, new research by Lucian Bebchuk, a Harvard Business School professor who studies executive pay, indicates that pay as a proportion of earnings is growing. From 1999 to 2003, the top five execs at the 1,500 largest public companies, as a group, took home $122 billion in salary, bonus and stock. That's not chump change.
The SEC's Test, Washington Post, January 17, 2006.
The question is whether the SEC's proposal will go as far as it should, especially on retirement compensation. At present, firms are not required to disclose the value of defined-benefit pension promises to executives, so reports of bosses' pay generally leave these out. But the value of these promises can be enormous. When Franklin D. Raines was pushed out of the top job at Fannie Mae in 2004, he left with an annual pension of $1.4 million for as long as he or his wife lives. Pension promises generally account for almost a third of a chief executive's total career compensation, according to Harvard's Lucian A. Bebchuk.
Disclosure Won't Tame C.E.O. Pay, New
York Times, January 14, 2006.
Better disclosure rules are all fine and well, but we already know plenty about executive pay. We know that it is out of control, socially corrosive and divorced from any real rationale (did Michael Dell really need stock options to ''incent'' him?). Nor is it economically insignificant. According to Lucian A. Bebchuk, an executive compensation expert at Harvard, from 2000 to 2003, the total compensation of the five best-paid officers of all publicly held companies amounted to 10 percent of corporate earnings.
Envy, Townhall.com, January 12, 2006.
The Wall Street Journal
article relies on Harvard law professor Lucian Bebchuk -- "a critic of the disconnect
between pay and performance" -- and Yaniv Grinstein of Cornell: "In the
period from 2001 to 2003, top-executive compensation (for the top five executives)
amounted to 9.8 percent of the companies' net income, almost double the 5 percent
in 1993 to 1995." That might be interesting if stockholders measured performance
by FASB earnings rather than by stock prices and dividends.
S.E.C. to Propose New Rules on How Executive Pay Is Reported, New York Times, January 11, 2006.
A study by Lucian A. Bebchuk of Harvard and Yaniv Grinstein of Cornell found that corporate assets used to compensate the top five executives at companies grew from less than 5 percent to more than 10 percent of aggregate corporate earnings from 1993 to 2003. The result was a large decline in company and portfolio values with no associated strengthening of management incentives.
Memo to Activists: Mind CEO Pay, Wall Street Journal , January 11, 2006.
Lucian Bebchuk, a Harvard Law scholar of executive-pay practices, published a study in the fall with Cornell's Yaniv Grinstein that attempts to measure pay as a portion of earnings. The results are eye-opening: From 1999 to 2003, the five top dogs at each of the 1,500 largest publicly traded firms cumulatively took down $122 billion in salary, bonus and stock, compared with $68 billion from 1993 through 1997.
Four Years Later, Enron's Shadow Lingers as Change Comes Slowly, New York Times, January 5, 2006.
One study, by Lucian A. Bebchuk of Harvard and Yaniv Grinstein of Cornell, found that corporate assets used to compensate the top five executives at companies grew from less than 5 percent to more than 10 percent of aggregate corporate earnings between 1993 and 2003. The result was a large decline in company and portfolio values with no associated strengthening of management incentives.
Rein in the corporate wages of excess, The Atlanta Journal-Constitution, January 3, 2006.
In the 1993-1995 period, public companies in the United States paid their top five executives the equivalent of 5 percent of profits, according to compensation researchers Lucian Bebchuk of Harvard University and Jesse Fried of the University of California at Berkeley. By 2000-2002 it had reached a staggering 12.8 percent of corporate profits. The drain declined, but was still significant at almost 10 percent in the 2001-2003 period, the latest stretch of time the two law professors considered.
How large companies can make shareholders happy, The Age.com, December 22, 2005.
Indeed, the chief proponent of shareholder empowerment, Harvard law professor Lucian Bebchuk, has conceded as much. In an article published in the Harvard Law Review earlier this year, Bebchuk commented that: "I do not view increasing shareholder power as an end in and of itself. Rather, effective corporate governance, which enhances shareholder and firm value, is the objective underlying my analysis."
SEC Aims to Clarify Executive Pay, Los Angeles Times, December 16, 2005.
Lucian Bebchuk, a Harvard professor who studies executive pay, said retirement plans were also
poorly disclosed. He determined this year that the median plan offered to CEOs of Fortune 500
companies was worth $15 million. The cost of these plans was largely not reflected in cash
compensation tables, he said.
A Board: The Porcupine Approach, The Corporate Counselor, November 2005.
Check out the compensation
committee.I think we've seen enough high-profile examples to know that compensation
is a hot-button issue. Professor Bebchuk of Harvard Law School has put us on notice
with his book, "Pay Without Performance." You must ask if the compensation
committee has the kind of freedom you think it should have. Does the committee have
the right to go out and hire compensation experts? Does it look at the cost across
the entire corporation to find the true cost of an executive and not simply his or
her income? How much influence does the CEO have on compensation? Is it a corporation
that historically has been a pay-for-play corporation when you hit 350, you're rewarded,
and when you hit 245, you're not rewarded?
Cox Embarks on First Governance Initiative, Financial Times, November 28, 2005.
Lucian Bebchuk, director of Harvard law school's corporate governance programme, found in a research paper that between 1996 and 2004, only 108 public companies faced contested board elections that were designed to oust sitting directors. Only 17 companies with market capitalisations of more than $200m faced such elections, and in just two cases were the rival slates of candidates triumphant.
Too Many Turkeys, Economist, November 24, 2005. So is there a cure? Certainly, fuller disclosure would help, argues Lucian Bebchuk of Harvard Law School and co-author of a recent book, "Pay Without Performance: The Unfulfilled Promise of Executive Compensation". If there were proper disclosure of forms of executive pay such as pensions, supplementary pensions and deferred compensation, then it would be easier for shareholders to see whether chief executives are being rewarded for genuinely good work.
Corporate America and Congress: Has Sarbanes-Oxley Restored Investor Confidence? Federal News Service, US News & World Report, October 5, 2005. MS. ELLSWORTH: I just have to jump in for one second, which is I do think I agree that
it should be set by independent directors. I do think that there has to be a strong process.
But I think all of us on the panel agree that current disclosure -- you look like a very
bright person, but if I gave you an annual report and a 10K, I can promise you, you go
through it until Friday and still not figure out exactly what that CEO is making nine times
out of 10. And I think what we've seen is some interesting studies this year alone. One
from, for example, professors of Harvard, Bebchuk and the like, who are talking about pension
'Stealth' Pensions Hide Huge CEO Payouts, MSNBC, MSN Money, September 28, 2005. After all, most companies already have a single number that represents the value of pension obligations for each top executive. Those companies that don't could compute such numbers at little cost, says Harvard Law School professor Lucian Bebchuk, author of a book on executive pay called "Pay Without Performance: The Unfulfilled Promise of Executive Compensation."
The Disney Verdict and the Protection of Investors, Financial Times, August 11, 2005. By Lucian Bebchuk
The Delaware Chancery Court issued its long-awaited and important opinion in the Disney litigation earlier this week, absolving the defendant directors of any liability. The decision makes it clear that investors cannot look to judicially imposed liability for protection from disastrous compensation decisions and other governance failures. What the decision leaves unclear, however, is where shareholders can look to for such protection under existing corporate arrangements.
NYSE Faces Criticism for Planned Governance Policies, Newsday.com, July 27, 2005. These proposed policies appear designed "to give shareholders very little say and to give the board the decisive say in the company's corporate-governance arrangements," said Lucian Bebchuk, a professor at Harvard Law School and director of its corporate-governance program. A study co-authored by Bebchuk found that such takeover defenses tend to erode companies' market value, in part because they "make the board less accountable" to shareholders.
Money Talks, Corporate Counsel, July 2005. As talking points, we asked panelists to consider some recent proposals for fixing executive compensation. These included the increased disclosure requirements that the Securities and Exchange Commission is currently considering, the heightened role for shareholders advocated by Lucian Bebchuk and Jesse Fried in their book, Pay Without Performance, and the reforms suggested to the New York Stock Exchange, Inc., by Winston & Strawn's Dan Webb in his investigation of the compensation paid to former NYSE CEO Richard Grasso.
To Rein in CEOs' Pay, Why Not Consider Outsourcing the Post? Wall Street Journal, July 19, 2005. "But when you look at the fine print of his contract, you see that a chunk of that annual bonus is virtually guaranteed," says Lucian Bebchuk, a Harvard law professor and co-author of "Pay Without Performance." "The main justification for escalating CEO pay levels is the need to generate powerful incentives -- but in reality the links between pay and performance aren't strong," he adds. Indeed, a big portion of executive compensation, including rich guaranteed retirement payments and "stealth" benefits such as free lifetime use of corporate jets, are completely divorced from performance.
AFSCME Employees Pensions Plan Recommends Board Reform at Morgan Stanley, AFSCME Press Release, June 29, 2005. Currently, Morgan Stanley uses a plurality voting standard for director elections, which means that the nominee who receives the most votes will be elected. Nearly all corporate director elections, including the last five at Morgan Stanley, are uncontested; in other words, there is only one candidate for each open seat. (Harvard Law School Professor Lucian Bebchuk has estimated that there were only about 80 contested elections at public companies from 1996 through 2002.) In uncontested situations, a plurality voting standard ensures that a nominee will be elected even if holders of a majority of shares voting exercise their right to withhold support from the nominee on the proxy card. Indeed, under plurality voting, a single share could elect a nominee.
Tyco's former CEO and CFO are Convicted of Stealing More than $600 Million From the Company, National Public Radio, June 18, 2005. SOLOMON: It's questionable what kind of impact the verdict will have on the larger issues of corporate governance and executive pay. Lucian Bebchuk, a Harvard business professor and co-author of the book, "Pay Without Performance," says the Tyco case will do little to inject some control over the massive pay of top executives.
Professor LUCIAN BEBCHUK (Harvard Business School): Good corporate governance cannot be produced by the blind instrument of the criminal law. And the problem we have had with executive pay is not that executives took something that was not approved but rather that boards and directors approved pay packages that have not been in the interest of shareholders.
SOLOMON: Instead of high-profile criminal cases, Bebchuk suggests that shareholders have more power to vote in company boards and get more information about executive pay.
Speech by SEC Staff, Chester S. Spatt: Governance, the Board and Compensation, SEC, June 9, 2005. An important aspect of governance that deserves much attention is the role of the board of directors and the extent to which a board mitigates existing incentive problems vis--vis the senior management and to what extent it creates incentive problems of its own. The role of the board is fundamental, but perhaps not adequately emphasized, at least in the academic literature.2 The board hires the Chief Executive Officer (CEO) and is responsible for managing succession. Yet there is typically a lot of interaction between the board and the CEO, whether or not the CEO serves as Chairman as well. The CEO often has tried to influence the composition of the board; an interesting empirical analysis of this is in Shivdasani and Yermack (1999). This discussion emphasizes that "conflicts of interest" may be crucial. An interesting academic analysis of the importance of conflict of interest in the determination of CEO compensation is given by the widely publicized book by Bebchuk and Fried (2004).3
The board sets the compensation for senior management, including the CEO, by a Compensation Committee. "Benchmarking" is often used, though the approach does not seem designed to produce a lot of effective information. Interestingly, the board is self-perpetuating (with new members selected by a Nominating Committee) and the auditor reports (in part) to the board through the Audit Committee.
Money Can't Buy You . . . Performance, The Age, June 10, 2005. In Pay Without Performance: The Unfulfilled Promise of Executive Compensation (Harvard University Press, 2004), prominent US law professors Lucian Bebchuk and Jesse Fried point out that in the US between 1991 and 2003 the average large-company CEO's total remuneration increased from 140 times the pay of an average worker to 500 times average pay. Similarly, in Australia between 1992 and 2002 CEO remuneration increased from about 22 times average weekly earnings to 74 times average earnings.
War on Section 404, The Daily Deal, June 6, 2005. Executives at small-cap companies, those yelling the loudest about Sarbanes-Oxley, earn a larger percentage of the company's earnings than CEOs of companies with medium and large stock market capitalizations. According to a soon-to-be released study by Lucian Bebchuk, director of the corporate governance program at Harvard Law School, the top five executives at small-cap companies received in earnings more than 25% of the profits of the companies between 2001 and 2003. "Executive compensation is much more of a big deal for small companies," Bebchuk says.
What are Mergers Good For?, New York Times, June 5, 2005. Lucian Bebchuk, a professor of law, economics and finance and director of the program on corporate governance at Harvard Law School, recently wrote a book with Jesse Fried on executive compensation titled "Pay Without Performance." In it, he argues that when acquisitions enter the mix, top executives often get away with larger amounts of "gratuitous payment" than might otherwise be possible. One reason for this, he says, is that the gains typically made by the shareholders of a target company may lull them into complacency about outsize payments to top executives. In other words, since everyone is getting a little richer in the transaction, the fact that a couple of executives are getting a lot richer is less bothersome.
Breaking Step, Corporate Counsel, June 2005. What exactly do insiders contribute? "Having executives in addition to the CEO is beneficial for two reasons," says Lucian Bebchuk, director of the Program on Corporate Governance at Harvard Law School. "First, getting to know other executives and interacting with them over a long period of time is potentially beneficial for future succession decisions that the directors will have to make. Second, hearing about the state of the company from more than one person could improve the quality of the picture directors have."
New Front Opens in Shareholder Demands for Comp Disclosure, Board Alert, June 2005. "Once the pension values are included, it turns out that pay is much less linked to performance than investors realize," says Lucian Bebchuk, professor at Harvard Law School and co-author of the study with Robert Jackson. "Investors should have an accurate picture of the extent to which an executive's payana, Arial, Helvetica, sans-serif">
Harvard Law School Professor Lucian A. Bebchuk has taken aim again - this time at pensions for CEOs of major U.S. corporations. Last fall, Professor Bebchuk, together with Jesse M. Fried, a professor of law at the University of California, published "Pay Without Performance" (Harvard University Press), a book that is critical of the lack of linkage between top management pay and performance.
Now, Professor Bebchuk, together with Robert J. Jackson Jr., an Olin Fellow in Law and Economics at Harvard Law School, has published a report entitled "Putting Executive Pensions on the Radar Screen." (This will be referred to as "the report.") The report is likely to provoke significant attention and discussion. And deservedly so. It discloses that, for many CEOs, the portion of their pay represented by pensions is larger than many have realized.
Do CEOs Earn What They're Paid? Pioneer Press, May 22, 2005.
Law school professors Lucian Bebchuk and Jesse Fried see it differently. Last year, they skewered pay practices for top executives in their book, "Pay Without Performance."
They argue that the system is inherently flawed because existing pay arrangements generally don't link pay tightly with performance and even directors classified as independent are often co-opted by chief executives.
More Nickels on Top, Star Tribune, May 15, 2005.
In their 2004 book, "Pay Without Performance: The Unfulfilled Promise of Executive Compensation," Lucian Bebchuk and Jesse Fried report that in 1991 the average large-company CEO received about 140 times the pay of an average worker. By 2003, the ratio had enlarged to about 500 to 1.
CEO Pay is Still on Steroids, The Providence Journal, May 10, 2005.
Executive pay now takes more than double the bite out of company earnings that it did a decade ago, according to a recent study by Lucian Bebchuk, a Harvard professor of law, economics, and finance, and Yaniv Grinstein, of Cornell University's School of Management. Looking at data for thousands of publicly traded companies, Bebchuk and Grinstein found that pay for the top-five company executives rose from 4.8 percent of aggregate net company income during 1993-95 to 10.3 percent of aggregate net income during 2001-03.
Retire Secretive Policy, Atlanta Journal-Constitution, May 10, 2005.
Perhaps new research on the overlooked cost to shareholders of executive retirement packages will motivate investors to demand a better accounting and the Securities and Exchange Commission to add some urgency to its review of compensation reporting rules. Lucian Bebchuk and Robert Jackson Jr. of Harvard Law School determined, from a sampling of the biggest public companies in the United States, that pension plans have the effect of ballooning executive compensation by an average of more than 48 percent.
Raines Joins AOL Founder's Venture, Washington Post, May 10, 2005.
Federal regulators ordered the company to restate earnings it reported for 2000 to 2003, which could cause a reduction in previously stated earnings of as much as $12 billion. The Securities and Exchange Commission and the U.S. attorney for the District of Columbia are investigating Fannie Mae. Raines received a retirement package potentially worth $25 million for him and his wife, according to a recent study by the Program on Corporate Governance at Harvard Law School.
Executive Pay: Over the Top?, ZENIT News Agency, May 7, 2005.
Bebchuk and Fried observe that the traditional view that considers an executive's salary as being set in a bargaining process between a board that is looking for the best deal for shareholders, and the executive who is seeking the best deal for himself, is mistaken. In fact, the data analyzed by the authors show that managerial power has played a key role in determining pay arrangements.
Why CEOs Haven't Earned Their Pay, Time Magazine, May 2005.
Of course CEOs rake in the dough. But a study says the beefier paychecks can't be explained by increases in their companies' market cap or anything else. In other words, the bosses didn't earn those hikes. The study--done by two professors, one from Harvard law, the other from Cornell's business school--found that among S&P 500 companies, the compensation of CEOs soared 146%, on average, from 1993 to 2003.
Morgan Stanley Board Takes a Pass on Special-Mtg Issue, Wall Street Journal, May 2, 2005.
That decision dismantles one of the most potent anti-takeover devices in the corporate toolbox, said Lucian Bebchuk, director of the Harvard Law School's Program on Corporate Governance.
"Essentially in the ranking of shareholder-unfriendly counterproductive provisions, the inability of shareholders to act between annual meetings falls significantly behind the ability to remove the whole board at the annual meeting," he said. "Having a staggered board is more pernicious and problematic then precluding action by either written consent or calling a special meeting."
Textron Shareholders Convert, Boston Globe, April 27, 2005.
The ICCR is a 34-year-old coalition of 275 faith-based institutional investors with combined portfolios of about $110 billion. The organization seeks to integrate social values into corporate and investor decisions, according to a statement.
Unclear is whether the vote will actually lead to changes at Textron, because shareholder resolutions are not legally binding, according to Lucian Arye Bebchuk, director of the corporategovernment program at Harvard Law School.
Fighting over Fairness Opinions, Corporate Control Alert, April 27, 2005.
Such skepticism is not new. In a 1989 paper, Marcel Kahan, now a professor of corporate law at the New York University School of Law, and Lucian Bebchuk of Harvard Law School suggested that judges "exercise substantial caution in assessing and giving weight to fairness opinions." Kahan recently said that he thought most investors have also long understood the basic conflict underlying fairness opinions.
A Perk Takes Off, Wall Street Journal, April 11, 2005.
One reason some people take issue with such arrangements is that the executive often gets to use the plane just for being available -- not necessarily for actually providing a service, says Lucian Bebchuk, a Harvard law professor and co-author of the book "Pay Without Performance." "The new CEO often doesn't like to get the advice of the old CEO," says Mr. Bebchuk.
Who's Winning?, Wall Street Journal, April 11, 2005.
Analysts predict that pay-related shareholder resolutions will continue to spread. But many remain skeptical about how much more impact they will produce. "Shareholder action, and sometimes shareholder outrage, do provide some constraints on pay," says Lucian Bebchuk, a professor at Harvard Law School.
Studies Fault Current Systems for Executive Compensation, SEC Today, April 5, 2005.
A paper on the growth of U.S. executive pay, written by Harvard Law professor Lucian Bebchuk and Cornell University professor Yaniv Grinstein, highlights the importance of the ongoing debate over executive compensation. The paper found that executive compensation between 1993 and 2003 grew at a level beyond that which could be explained by changes in firm size, performance and industry classification. Bebchuk also released a paper co-written with University of California law professor Jesse Fried on the flawed compensation arrangements at Fannie Mae between 2000-2004. The Fannie Mae paper calls for a reform of the executive pay and corporate governance systems.
Street Fight, Barrons Online, April 4, 2005.
Such generosity is by no means an anomaly, we're pleased to say. A recent study by Lucian
Bebchuk of Harvard Law and Yaniv Grinstein of Cornell confirmed that corporate boards are far
from stingy in compensating their companies' brass. Further, the study, carried out under the
aegis of the John M. Olin Center for Law, Economics and Business at Harvard Law School,
disclosed that, in rewarding the captains of commerce and industry for their labors, the boards do
not place inordinate reliance on such chancy considerations as the growth in a company's
The New Executive Bonanza: Retirement, New York Times, April 3, 2005.
"The fact is, we don't have good economic reasons for channeling dollars for this form," said Lucian A. Bebchuk, a Harvard Law School professor and co-author with Jesse Fried of a recent book, "Pay Without Performance." "There is a clear benefit in terms of making the amount of pay less transparent."
Study of Fannie Mae Cites 'Perverse' Executive-Pay Policy, Washington Post, March 31, 2005.
Lucian A. Bebchuk of Harvard Law School and Jesse M. Fried of the University of California at Berkeley School of Law, in a paper distributed by Harvard yesterday, said Fannie Mae rewarded Raines, Howard and other senior executives in such a way that "weakened and distorted" their incentives to create a strong company.... Bebchuk and Fried specifically criticized Fannie Mae's practice of awarding cash bonuses based on growth in earnings per share, saying it provided incentives for senior managers to manipulate accounting in Fannie Mae's huge portfolio of mortgage investments to reach earnings targets.
For Gillette CEO, it was a $29m Year, Boston Globe, March 31, 2005.
Over the past decade, salaries and bonus packages for chief executives have more than doubled when taking into consideration economic variables such as inflation, said Lucian Bebchuk, Harvard Law School professor and co-author of "Pay Without Performance: The Unfulfilled Promise of Executive Compensation."
Special Report: CEO Pay 'Business as Usual', USA Today, March 30, 2005.
"Large pay packages continue to touch a raw nerve," says Harvard professor Lucian Bebchuk, author of 2004's Pay Without Performance: The Unfulfilled Promise of Executive Compensation. "As long as boards are unaccountable, Corporate America won't change and fundamental problems will remain."
Out of Control?, Across The Board, March/April, 2005.
What's remarkable about Pay Without Performance, and which may give it more impact than other books about executive pay, is that it is not an angry screed but, rather, a studied, scholarly analysis whose understated language gives it a cumulative effect that is overpowering. Moreover, it was not written by any of the "usual suspects" -- the critics who have a bone to pick with corporate America and its excesses, which makes Bebchuk and Fried's book more credible and more damning.
Curbing Executive Entitlements, St. Petersburg Times, March 24, 2005.
According to the Post, salaries stayed strong even as corporate profits dropped in the late 1990s. "It's not something that can be explained by the economic fundamentals of a company," Lucian Bebchuk, a Harvard Law professor and director of the school's program on corporate governance, told the newspaper.
Captians of Piracy, New York Times, March 21, 2005.
Indeed, C.E.O. pay increased most rapidly at companies with weak governance and few shareholder rights, according to a study this year by Lucian Bebchuk of Harvard and Yaniv Grinstein of Cornell. That study also found that public companies devoted about 10 percent of their profits to compensating their top five executives, up from 6 percent in the mid-1990's. That's a hijacking of corporate wealth by top managers.
Calpers Majority Vote Push Could Propel Issue Forward, Dow Jones Newswires, March 15, 2005.
Some governance experts, however, don't even think majority voting goes far enough. It's "a mild but important step toward improving the arrangement governing corporate elections," said Harvard law and economics professor Lucian Bebchuk. "While majority voting is a useful step in the right direction, it isn't sufficient. More needs to be done to turn corporate elections from a myth into a reality. To this end, shareholders should be provided with access to the ballot and staggered boards should be dismantled."
Binding Resolutions and Coordination Circumvent Structural Limitations of Shareowner Action, SocialFunds.com, February 18, 2005.
Harvard Law and Economics Professor Lucian Bebchuk has written a paper to be published this year in the Harvard Law Review entitled The Case for Increasing Shareowner Power that supports the principle of AFSCME's stance. "My analysis indicates that the considerable weakness of shareholders in US companies is not a necessary consequence of the disperr executives have gleaned from
deferred-c, February 9, 2005... "There is the possibility the pay package provides perverse incentives for a sale that is not necessarily for the right price and not at the right time for shareholders," said Lucian Bebchuk, professor and director of the Program on Corporate Governance at Harvard Law School.
Give Us More Money, Accounting Today, February 7, 2005.
For some time, it has become clearer and clearer to us at New Products that we make too little money, and that chief executives make too much. Harvard Law School professor Lucian Bebchuk and Berkeley law professor Jesse Fried make this clear (at least the part about executive pay) in their book, Pay without Performance: The Unfulfilled Promise of Executive Compensation, which delves into the widespread and systemic governance flaws that have allowed execs undue influence in the setting of their own pay, and the ways in which corporate boards' role as shareholders' agents has been subverted. Their proposed solutions revolve around fixing the misincentives involved in so many pay packages, and removing the barriers that insulate directors from their constituents.
Reining Back the Company Gravy Train, Management Today, February 7, 2005.
Lucian A. Bebchuk, professor at Harvard Law School, and Yaniv Grinstein of Cornell Business School, find that the pay of the top five executives at a number of large firms rose much faster than did company profit or stock market value since the early 1990s. That pay now accounts for nearly 10% of total corporate profit compared with 5.7% in the early 1990s.
The Compensation Conundrum, Tech Central Station, February 3, 2005.
In their new book Pay Without Performance (Cambridge, MA: Harvard University Press, 2004. Pp. xii, 278. $24.95), law professors Lucian Bebchuk and Jesse Fried contend that actors and sports stars bargain at arms'-length with their employers, while managers essentially set their own compensation. As a result, they claim, even though managers are under a fiduciary duty to maximize shareholder wealth, executive compensation arrangements often fail to provide executives with proper incentives to do so and may even cause executive and shareholder interests to diverge.
Capitalist Punishment, The Financial Times, January 29, 2005.
Figures compiled by Lucian Bebchuk, a Harvard University law professor, show that 68 per cent of non-financial corporations that went public between 1996 and 2000 incorporated in Delaware. Virtually every company that incorporates outside its home state now chooses Delaware.
Outfoxing Sarbanes-Oxley, Slate, January 24, 2005.
"It's just another way to provide executives with pay that isn't related to performance," says Lucian Bebchuk, a professor at Harvard Law School and co-author of the new book Pay Without Performance. "Most of these are basically cousins to the old loans that companies used to make before Sarbanes Oxley. They're lump sum transfers that may or may not be justified."
What's $13 Million Among Friends?, New York Times, January 17, 2005.
Professor Lucian Bebchuk writes: Ten former directors of Enron have agreed to pay $13 million from their own pockets to settle a class action suit stemming from Enron's collapse in 2001, which wiped out some $60 billion in shareholder value. Because directors almost never have to pay even a penny in such suits, the Enron settlement - announced just days after several former WorldCom directors agreed to a similar deal - was widely viewed as a significant development that could discourage potential directors from serving on corporate boards.
Mayday? Payday! Hit the Silk!, New York Times, January 8, 2005.
In their book, "Pay Without Performance" (Harvard University Press), Professor Fried and his co-author, Lucian Bebchuk, a Harvard Law School professor, contend that retirement pay is just the most recent hiding place for excessive compensation and that executive contracts are intentionally drafted to keep things quiet. "Compensation plan designers have an incentive to obscure or make more opaque the total value of an executive's compensation package," they wrote, "as well as to disguise the extent to which the form of compensation deviates from what best serves shareholders' interests."
Nice Work if You Can Get It, Wall Street Journal, December 23, 2004.
In "Pay Without Performance" (Harvard University Press, 278 pages, $24.95), Lucian Bebchuk and Jesse Fried, two notable legal scholars, argue that CEOs are too often given incentives to pump up short-term earnings at the expense of long-term financial soundness and that CEOs too often get their jobs through over-friendly arrangements with company directors. Indeed, the authors believe that the fundamental practices of American business are rotten to the core.
Entrenched Directors Bad for Shareholder Value, Wall Street Letter, December 17, 2004.
A recent Harvard University study of 1,500 companies - over 90% of the U.S. stock market capitalization - concluded that "entrenching" provisions have a negative effect on shareholder value. Entrenchment regards company policies that protect directors from removal. Firms with a higher level on the entrenchment index had economically significant reductions in firm valuation and lower stockholder returns during the 1990-2003 period, according to the study's authors Lucian Bebchuk, Alma Cohen and Allen Ferrell.
In praise of the modern firm, The Economist, December 17, 2004
In "Pay Without Performance" (Harvard University Press) Lucian Bebchuk of
Harvard and Jesse Fried of Berkeley set out to identify the failure of corporate
governance that allows chief executives' compensation to carry on rising with
little relation to performance. They point the finger firmly at board directors,
arguing that "we should focus not only on insulating directors from the
influence of executives [the direction of most regulation in the field so far],
but also on reducing their current insulation from shareholders."
Pay without Performance: The Unfulfilled Promise of Executive Compensation, New York Law Journal, December 13, 2004
In a thought-provoking book, "Pay Without Performance: The Unfulfilled Promise of Executive Compensation, "Professors of Law Lucian Bebchuk of Harvard Law School and Jesse Fried of the University of California at Berkeley examine factors that can prevent executive pay from accurately reflecting performance. In this reviewer's experience, there is no more complete and carefully considered published work addressing the weaknesses in the current executive pay process in the United States. Anyone involved in executive compensation matters or in issues of corporate governance will find "Pay Without Performance" a worthwhile read and a valuable information source for future reference.
Dealmakers Deprived of Ruling on PeopleSoft CAP Plan, Dow Jones Newswires, December 13, 2004
Harvard law and economics professor Lucian Bebchuk has conducted research concluding that companies with antitakeover measures created less value for shareholders over time. PeopleSoft's plan "is an especially worrisome takeover defense, because a poison pill is reversible in a way that this plan was not designed to be." If such customer plans are seen as valid and used in the future, "that would increase takeover defenses and obstacles to potentially efficient acquisitions beyond the existing arsenal of defenses," he said. "Right now, the validity of this defense is left in doubt, and given my view of how pernicious this defense can be, I hope the uncertainty would chill and discourage its actual use in the future."
Running out of Options, Pay for Performance, The Economist, December 11, 2004
Slowly the veil is being lifted from shareholders' eyes. William Donaldson, the chairman of America's Securities and Exchange Commission (SEC), said last week that, "we have to strive to get that information [on executive pay] in understandable and complete form". Last month CalPERS, America's biggest pension fund, adopted a plan to "tackle abusive executive compensation" which includes submitting a proposal to the SEC next year for greater transparency of compensation packages. Does this then mark defeat for proponents of the principle of pay-forperformance as more and more firms reveal the extent to which the truth has been "Pay without Performance"- the title of a recent book by two American law professors, Lucian Bebchuk and Jesse Fried?
CEOs and their Indian Rope Trick, The Economist, December 9, 2004
In aggregate, the sums forked out in pay to top American executives are now enormous. According to Lucian Bebchuk of the Harvard Law School and Cornell's Yaniv Grinstein, the top five executives of 1,500 large American companies in 1993-2002 received a total of about $250 billion.
Readings, Washington Post, December 5, 2004
In Pay Without Performance: The Unfulfilled Promise of Executive Compensation, professors Lucian Bebchuk and Jesse Fried offer a devastating critique of the way public companies pay their top executives. Relying on data rather than rhetoric, Fried and Bebchuk describe a diseased system in which executives wield enormous influence over their pay, board members have little incentive to slow the gravy train, and everyone involved goes to great lengths to hide the numbers from shareholders.
Top Execs' Generous Pay Puzzles Investors, Reuters, December 5, 2004.
"Of all the corporate-governance issues, this attracts the most attention because ... there has been very little progress," said Lucian Bebchuck, Harvard Law professor and co-author of the new book "Pay Without Performance, the Unfulfilled Promise of Executive Compensation." The most immediate fix, according to Bebchuck and others awaiting final 2004 compensation tallies in annual reports sent to shareholders in the spring, is complete disclosure of all elements of pay, written in plain English.
Gutierrez Severance Hinges on Reason for Leaving Kellogg, Dow Jones Newswires, December 3, 2004
Kellogg's employment agreements with its other top two executives - President and Chief Operating Officer David Mackay and Executive vice President Alan F. Harris - don't include similar "good-faith" language empowering them to be the arbiters of whether they're leaving for good reason. … Gutierrez may not need to cite his contract in order to get a severance package from the company. … "Obviously the board has lots of discretion in this kind of situation," said Lucian Bebchuk, a Harvard Law School professor who runs the school's corporate governance program.
Pay without Performance: The Unfulfilled Promise of Executive Compensation, The Chronicle of Higher Education, December 3, 2004.
In times both bullish and bearish, therpple" theories and other explanations that deny any systemic problem. Inadequate, say Lucian Bebchuk, a professor of law, economics, and finance at Harvard University, and Jesse Fried, a professor of law at the University of California at Berkeley. In Pay Without Performance: The Unfulfilled Promise of Executive Compensation (Harvard University Press), the scholars uncover what they say are widespread, persistent, and indeed systemic flaws in compensation arrangements.
Inflated Pay, Time Magazine, December 3, 2004
Ever wonder if corporate executives are paid too much? Look at it this way: from 1993 to 2002, the aggregate compensation of the top five executives in all public companies amounted to an astonishing $250 billion, equivalent to 7.5% of all corporate earnings. Defenders of the status quo say that such bloated pay provides managers - particularly CEOs - with incentives crucial to high performance. Those defenders have not yet read Lucian Bebchuk and Jesse Fried's Pay Without Performance. The authors marshal a formidable arsenal of facts to pick apart the incentives argument, exposing myriad ways in which CEOs have decoupled pay from performance and hidden that fact from investors with the aid of supine corporate directors. The lucidly argued treatise frames the issue not in ethical terms but as a problem of efficiency. As for solutions, Bebchuk and Fried maintain that board directors should be not only more independent of the executives they supervise but also much more dependent on stockholders. If shareholders had the power to alter the composition of the corporate board, the authors argue, directors would be more likely to keep investors' icentive for managers to manage a business for long-term growth. That is why the Financial Accounting Standards Board must not be hindered in its initiative to issue a rule treating stock options as an expense.
Staggering, The Economist, November 13, 2004
Another disappointment is the slow progress in abolishing "staggered" boards - ones where only one-third of the directors are up for re-election each year to three-year terms. Invented as a defence against takeover, such boards, according to a new Harvard Law School study by Lucian Bebchuk and Alma Cohen, are unambiguously "associated with an economically significant reduction in firm value".
Where are the Economists?, New York Times, October 28, 2004
Lucian A. Bebchuk, professor of law, economics and finance at Harvard Law School, and Yaniv Grinstein of Cornell Business School find that a proper calculation of the total compensation of the top five executives of all companies, including salaries, stock options and pensions, came to a stunning $260 billion over the last 10 years. This might be justifiable if there were ample evidence it was based on market performance or corporate earnings. But Mr. Bebchuk and Mr. Grinstein find that since the early 1990's pay has risen about twice as fast as the market value of stocks and much faster than corporate income. Total compensation was 5.7 percent of total corporate income in the early 1990's; it is now under 10 percent.
An Index for Board Watchers, Business Week, October 18, 2004
Researchers have long tried to assess the impact of good governance on stock returns. On Nov. 1, proxy adviser Glass Lewis will introduce a stock index that links the two. Based on research from Harvard Law School professor Lucian Bebchuk, the Shareholder Rights Index reweights the Standard & Poor’s 500-stock index, giving more heft to companies with less-entrenched boards.
The Region's Highest-Paid Executives, Washington Post, August 20, 2004.
That is still the case nationwide, too, experts said. "Despite the substantial pressure on companies to change, and despite the widespread recognition that things should change, there has been far too little change in the compensation landscape," said Lucian A. Bebchuk, director of Harvard Law School's program on corporate governance.
Business Backlash, The Economist, July 15, 2004.
Mark Roe, a Harvard Law School professor, calls such periodic swings
in sentiment against big business "backlashes". These occur,
argues Mr Roe, following periods of greater economic freedom. Freedom
promotes efficiency: small firms merge with each other to form bigger
ones, which produce at greater scale. It also promotes inequality
and erodes social cohesion, as the power and wealth of the managerial
class grows along with companies. This creates envy among workers,
and the potential for political instability.
Harvard Study Correlates Staggered Boards With Lower Shareowner Value, CSR Wire, July 15, 2004
Corporate governance advocates have long opposed classified boards,
which stagger director re-elections to prevent the removal of the
entire board. Many take action by filing shareowner resolutions year
after year calling for annual board elections. &Now, an academic
study provides empirical evidence that bolsters the case against staggered
boards by correlating them to lower shareowner value. The Harvard
Law School Program on Corporate Governance published the study, entitled
"The Costs of Entrenched Boards," in late June. Lucian Bebchuk,
a Harvard law professor and director of the corporate governance program,
and Alma Cohen of the National Bureau of Economic Research (NBER)
and the Analysis Group, a financial strategy consultancy, co-authored
Expensing Ripe for Abuse, TheSreet.com, June 29, 2004.
"Arguably all companies will have an incentive to underestimate"
if forced to expense options costs, said Lucian Bebchuk, a professor
of law, economics and finance at Harvard Law School. "The evidence
is strong that, in general, management always errs on the side of
lower numbers where discretion is available."
Scrutinitizes Conflicts in Bankers' 'Fairness Opinions', Wall Street Journal, June 11, 2004.
a fundamental conflict to begin with when a company hires an investment
banker with the expectation that they will provide the company with
the fairness opinion they are looking for," said Lucian Bebchuk,
professor of law, economics and finance at Harvard Law School. "Disclosing
that this problem exists .. might enable the shareholders to assign
a touch less weight to the investment banker's opinion," but
the incentives will still exist, he said.
Makes Perfect? The Daily Deal, June 4, 2004.
A few weeks ago in this space, we discussed a recent article by Guhan Subramanian
in which the Harvard Law School professor analyzes freeze- out transactions,
those in which a majority shareholder in a public company buys out the
minority holders. While lawyers at top M&A shops will no doubt be
gratified by Subramanian's conclusion that they are more likely than
their less-touted peers to advise buyers to use a method likely to be
cheaper for them, we were struck by other questions the piece implies.
Stock-Option Myth, Business Week, May 6, 2004.
it comes right down to it, few employees are going to work against the
best interests of a company that's putting food on their table or their
kids through college, especially when the outfit is trying to restore
the value of underwater options. "What's special here is that they
knew options were coming," says Lucian A. Bebchuk, a professor
at Harvard Law School, who has written widely on corporate governance.
"What makes them work hard is whatever emotional reaction they
have to what the company's doing for them."