Gretchen Morgenstern reports in this morning’s Times about a Public Citizen’s shareholder’s proposals to hold the top executives at Citigroup at least financially responsible for their criminal activities:
.. [The proposal] would require that top executives at the company contribute a substantial portion of their compensation each year to a pool of money that would be available to pay penalties if legal violations were uncovered at the bank. To ensure that the money would be available for a long enough period — investigations into wrongdoing take years to develop — the proposal would require that the executives keep their pay in the pool for 10 years.
This proposal seriously underestimates the resourcefulness of the criminal mind. Citigroup is opposing the proposal, which is non-binding in any event, but these executives are smart people, sociopaths that they may be. It won’t be long before they see it as a gift.
When someone makes a proposal like this it is always best to game it out; try to figure out how you could get around it, or, better yet, turn it to your advantage.
Bearing in mind that their Boards of Directors are stacked with their fellow criminals, who are always willing to enable them, what are they likely to do? Each and every one of those directors would be easily convinced that withholding a dime in salary from their poor, misunderstood compadres would be terribly unfair, and that it is therefore only fair for the corporation itself to pick up the tab for the sequestered payments. The obvious solution is to simply increase the executive pay in an amount equal to the sequester. That way, if their criminal activity is uncovered, they basically lose nothing, while if they manage to escape detection, they get the money back, which essentially turns it into a bonus for a criminal job well done.
One can certainly understand the motivation behind these proposals, given the government’s decision to give these guys a “get out of even being considered for jail” card. But the fact is that so long as jail is off the table, no corporate governance rule is going to make any difference.
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