Monthly Archives: March 2007

Congressional Hearings on CEO Pay

Editor’s Note: This post is by Steven Kaplan of the University of Chicago.

Chairman Barney Frank and the House Committee on Financial Services held hearings last week on CEO payLucian Bebchuk, Nell Minow and I were among those who testified.  My testimony is available here.  The testimony argues and presents evidence that the typical CEO is not overpaid. 

Two points are worth emphasizing.  First, the top 25 hedge fund managers earned more in 2004 than all 500 S&P 500 CEOs combined.  The same was true in 2005.  Second, when pay is measured by the amount of money CEOs actually receive (which includes exercised options), the typical CEO is highly paid for performance.

Bristol-Myers Squibb Adopts My CEO Pay Proposal

Editor’s Note: This post is by Lucian Bebchuk of Harvard Law School.

Last week, Bristol-Myers Squibb followed Home Depot to become the second company to reform its pay-setting process on the basis of shareholder proposals I submitted.  Last fall I submitted to Bristol-Myers Squibb a shareholder proposal to adopt a bylaw provision requiring that decisions about the CEO’s compensation be ratified by three-quarters of the company’s independent directors.  The text of the proposal and an accompanying supporting statement are available here

The company initially sought to exclude the proposal from the ballot, and I filed with the SEC a letter opposing the company’s request for a no-action letter.  Subsequently, however, the company and I reached an understanding under which the company agreed to adopt the proposed arrangement as a corporate governance guideline and I agreed to withdraw the proposal.

Last week the company’s Board of Directors approved the revision of the company’s corporate governance guidelines, which now state the following: “The Chief Executive Officer’s compensation must be approved by at least three-fourths of all the independent directors of the Board.”  In addition, the Board approved corresponding language changes in the charter of the Compensation and Management Development Committee.  Both the Corporate Governance Guidelines and the Compensation and Management Development Committee Charter are available on the company’s website here.

Earlier on, following my submission of a proposal to Home Depot, Home Depot and I reached an understanding under which the company amended its bylaws to implement the proposed arrangement and I withdrew my proposal.


Pill Bylaw Proposal Gets 57% of Votes Cast at Disney

Editor’s Note: This post is by Lucian Bebchuk of Harvard Law School.

At their annual meeting today, the shareholders of the Walt Disney Company voted a proposal I submitted to adopt a bylaw provision concerning board adoption of poison pills that I submitted. With 879,028,289 FOR and 626,587,117 AGAINST, and 25,884,804 abstentions, the proposal won about 57% of the votes cast.

Although the proposal failed to get the majority necessary for amending the bylaws, the majority vote in its favor reflected strong shareholder support, and Disney’s chair John Pepper announced at the meeting that the board will give the proposal a “prompt and serious consideration.”

The Disney proposal is of a similar type to the one that I submitted to CA last spring. CA had to place the proposal on the ballot following litigation in the Delaware Chancery Court. An article about this type of bylaw is available here. At the CA annual meeting, the proposal got 41% of the votes, which induced CA to adopt a new pill whose terms enable shareholders to redeem it when a qualified offer is made.


“Whiny” Shareholders and Access to Management’s Proxy Statement

Editor’s Note: This post is by J. Robert Brown, Jr. of the University of Denver Sturm College of Law.

Lynn Stout (Paul Hastings Professor of Corporate and Securities Law at UCLA School of Law) today in the Wall Street Journal argues against allowing shareholder access to management’s proxy statement to elect directors, something under consideration by the Securities and Exchange Commission.  

There are plenty of pros and cons to this approach (the pros far outweighing the cons) but Professor Stout comes up with a new one: Reacting to “whiny” and “shrill” investors, more companies will eliminate public shareholders altogether and sell out to private equity firms.

There are many many problems with the editorial, but mostly Professor Stout is wrong to attribute private equity buyouts to fatigue over shareholder demands.  In fact, management engages in these transactions for the same reason as anyone else: financial gain.  As Professor Stout herself notes, managers typically get a piece of the company and annual returns averaging 20-25% a year.  That these transactions are more common is attributable to the extraordinarily high degree of liquidity and the large number of private equity firms chasing deals.


Warren Buffett’s Frustration Over CEO Pay Practices

Editor’s Note: This post is by Broc Romanek of

Always a fascinating read, here is Warren Buffett’s 23-page 2007 letter to shareholders.  Warren always has something to say about executive compensation practices, and this year’s letter is no exception.  On page 19, he notes that he has served as a director on 19 boards and he has been the “Typhoid Mary” of compensation committees:

“At only one company was I assigned to comp committee duty, and then I was promptly outvoted on the most crucial decision that we faced.  My ostracism has been peculiar, considering that I certainly haven’t lacked experience in setting CEO pay. At Berkshire, after all, I am a one-man compensation committee who determines the salaries and incentives for the CEOs of around 40 significant operating businesses.”


The Goals and Promise of the Sarbanes-Oxley Act

This post is by John Coates of Harvard Law School.

The Journal of Economic Perspectives recently published my article, The Goals and Promise of the Sarbanes-Oxley Act.  The article responds to criticism of Sarbanes-Oxley as a costly regulatory overreaction, arguing that Sarbanes-Oxley, while imperfect, is likely to bring net long-term benefits.  The abstract describes the article as follows:

The primary goal of the Sarbanes-Oxley Act was to fix auditing of U.S. public companies, consistent with its full, official name: the Public Company Accounting Reform and Investor Protection Act of 2002.  By consensus, auditing had been working poorly, and increasingly so.  The most important, and most promising, part of Sarbanes-Oxley was the creation of a unique, quasi-public institution to oversee and regulate auditing, the Public Company Accounting Oversight Board (PCAOB).  In controversial section 404, the law also created new disclosure-based incentives for firms to spend money on internal controls, above increases that would have occurred after the corporate scandals of the early 2000s.


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