PROFNET EXPERT ALERTS: Policing Bank Pay / FTC and Blogs / High Unemployment


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October 26, 2009 3:59 PM EDT 

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    TOPIC ALERT

    Fed Plan to Police Bank Pay (10 responses)

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    EXPERT ALERTS

    1.  Business: President Obama's Announcement on Small-Business Stimulus
    2.  Economy: Is Growth Back on Track?
    3.  Economy: Dow at 10,000: Party in the Streets? No.
    4.  Finance: The Spreading Galleon Group Insider-Trading Scandal
    5.  Finance: Plain Language in Legal and Financial Disclosure Documents
    6.  Finance: White-Collar Crime and Technology
    7.  Marketing: Portrait of Today's Female Boomer
    8.  Media: Blogosphere Should Embrace FTC Move Toward Ad Disclosure

FED PLAN TO POLICE BANK PAY

A proposal by the Federal Reserve would allow the central bank to review -- and veto -- banks' pay policies. Following are experts who can discuss the legalities and viability of the proposal:

1. JOHN ALAN JAMES, adjunct management professor at PACE UNIVERSITY's Lubin School of Business in New York City, and expert on corporate governance and regulatory issues, created the first texts in English on laws governing companies in key European countries: "Does the federal government, TARP and all, have the legal right to mandate behavior in institutions registered under state law? I do not believe it does, and this is worthy of a debate on its constitutionality, starting at the Chancery Court in Delaware, and going all the way to the Supreme Court. Will we all have to adopt one particular approach to risk management? Impossible. Each organization has to design and develop its own individualized policies relating to risk. Policies must reflect the company's industry, its position and resources. These will always be different. Therefore, the role of the Fed should be restricted to evaluating the risk management policy and program, and periodic evaluation and assessment of its effectiveness." At Lubin, three years ago, James was the first to introduce into an MBA curriculum anywhere in the world a course covering corporate governance systems in the leading world economies. He recently appeared on Bloomberg radio and television to discuss the Madoff scandal and, among other media appearances, was quoted on CFO.com about the Satyam scandal. James is located in Stamford, Conn. News Contact: Bill Caldwell, wcaldwell@pace.edu Phone: +1-212-346-1597 Web site: http://www.pace.edu (10/26/09)

2. THOMAS MONDSCHEAN, professor of economics at DePAUL UNIVERSITY, Chicago, is an expert on economic conditions and international economics, who has done economic research as a consultant with the Federal Reserve: "Bank regulators have a responsibility to manage risk-taking by banks mainly because of deposit insurance, but also because of the important role banks play in providing payment services and business credit (especially to small and medium-sized businesses). The current crisis has demonstrated that poorly designed compensation systems can lead to increased risk-taking. For example, bonus programs that rewarded origination of mortgage loans, without regard to their quality, clearly contributed to the subprime debacle. So there is no doubt in my mind that monitoring compensation schemes should be part of regulatory risk management. As for what types of compensation systems should be adopted, I would generally favor plans that align more closely management with the long- term interests of shareholders. For example, I would favor using restricted stock awards that must be held for at least five years and can be taken back if the bank has excessive losses during the holding period. This would focus management attention on long-term performance and hopefully avoidance of excessive risk-taking." News Contact: Robin Florzak, rflorzak@depaul.edu Phone: +1-312-362-8592 (10/26/09)

3. JAMES BRICKLEY, Gleason Professor of Business Administration, William E. Simon Graduate School of Business, UNIVERSITY OF ROCHESTER: "The Fed's oversight would not be limited to top executives, but would include lower- level employees, such as traders and loan officers. It is expected to affect around 5,000 firms and tens of thousands of employees, with special attention being paid to the nation's 25 largest banks. Compensation is currently a hot- button issue, and attempts to limit the level and form of compensation in banks and other corporations are likely to receive political support from the general public. However, the Fed's actions are premature and ill conceived. The likely negative consequence of the proposed action would be to reduce the competitiveness of America's top banks -- through the loss of productive employees and adoption of suboptimal pay practices. The Fed is unlikely to have sufficient knowledge of either organizational theory or of a given institution to do a good job, even if they appropriately focused more broadly on a bank's overall organizational system. It will almost certainly get it wrong if it focuses myopically on compensation. The result of this regulatory oversight is likely to be a less efficient banking industry in the United States." News Contact: Charla Kucko, charla.kucko@simon.rochester.edu Phone: +1-585-273-4806 (10/26/09)

4. DAN BORGE, director in LECG's New York consulting firm, was the principal designer of the first enterprise risk-management system, Bankers Trust's risk- adjusted return on capital (RAROC), which became the model for the financial services industry. Borge provided the following quote in a recent article, "Will Fed's Exec Comp Rules Have Big Impact?" (American Banker, Oct. 23): "It's a huge deal. Compensation committees at banks will be on the spot to demonstrate they've chosen a compensation system that will not incentivize risk. Doing that requires knowing who is taking the risk. Given the public attention on this whole issue of pay, that tells me the Fed is serious about transmitting that pressure to the banks." Borge is the author of "Boards: Consider Risk When Determining Compensation" (September 2009), "A Return to Credibility" (June 2009), and a forthcoming book, "The CFO's Role in Navigating the Known, the Unknown, and the Unknowable." News Contact: Robin Brassner, rbrassnernyc@gmail.com Phone: +1-212-262-7472 (10/26/09)

5. RANDALL HOLCOMBE, research fellow at THE INDEPENDENT INSTITUTE, is the co- editor of the new book "Housing America: Building Out of a Crisis": "The idea that bureaucrats have a better idea for how compensation contracts should be structured than those in the business community makes little sense on the face of it. But I see another danger here that hasn't been sufficiently explored: even if some oversight over bankers' compensation were warranted, the Fed is not the right organization to do it. For one thing, the Fed itself has relatively little oversight. But the largest factor is that the Fed's primary responsibility is controlling the money supply to ensure price level stability. The Fed will be most effective in that task when that is its primary focus, and giving it the power of oversight over bankers' compensation will be an added distraction. Bureaucratic oversight of executive compensation is a bad idea by itself, but it's a really bad idea to give this power to the Fed." Holcombe is located in Tallahassee, Fla. News Contact: Wendy Honett, whonett@independent.org Phone: +1-510-632-1366, ext. 116 Web site: http://www.independent.org/aboutus/person_detail.asp?id=528 (10/26/09)

6. TERRY CONNELLY, dean of the Ageno School of Business, GOLDEN GATE UNIVERSITY: "This move by the Fed has been coming like Christmas; it is clearly legal, with the cover of the Fed's supervisory powers. The Fed is only trying to do what Warren Buffett tried and failed to do unilaterally while he was in charge of Salomon Brothers. A lot of good and very talented people left the firm when others swooped in to hire them." Connelly, who has 30 years experience in investment banking, law and corporate strategy and has run Wall Street compensation systems, asserts that the Fed will impose the same standard on every firm. He is based in San Francisco. News Contact: Serene Buckley, serene@mortarpr.com Phone: +1-415-772-9907, ext. 117 (10/26/09)

7. STEVE STANEK, policy advisor on tax issues and managing editor of Budget & Tax News, a monthly publication of THE HEARTLAND INSTITUTE, a libertarian free-market think tank based in Chicago: "I can think of nothing that encourages reckless risk-taking more than what the government has already done: rescue companies that should have failed. Executive pay would not be an issue if the executives had lost their shirts and professional reputations, as should have happened in a country that supposedly believes in free markets and capitalism. The best regulator of executive pay is a free market in which executives lose their jobs when they drive their companies to ruin." Web site: http://www.heartland.org (10/26/09)

8. MAUREEN MARTIN, attorney and senior fellow for legal affairs, THE HEARTLAND INSTITUTE, a libertarian free-market think tank based in Chicago: "I question the legal authority of the Fed to regulate bank compensation policies in the manner proposed. The Fed is using 'guidance' to accomplish this, rather than through formal regulations. This decision to use guidance means the Fed can proceed in looser fashion. First, it takes the proposal out of the requirements of due process -- formal notice and an opportunity to be heard -- that apply when regulations are proposed. A step of this importance ought to be accomplished by a formal deliberative process with full participation, not only by the public, but also the full regulated community. Second, the Fed is proposing to tailor standards for its review of compensation policies on a bank-by-bank basis. That means there will be differing conclusions reached about whether the policy is 'unsound' or unsafe. Without a bright line standard, abuses can proliferate." Web site: http://www.heartland.org (10/26/09)

9. ANDREW LUND, associate professor of law, PACE LAW SCHOOL: "So much energy has been focused on executive compensation, which no one has demonstrated had anything to do with the crisis (in fact, some researchers have shown that no link between the two appears to exist). This may be because executives' behavior is constrained in any number of ways beyond the parameters of their compensation. What the Fed's rules do is reach down to the level of the employee who seems less constrained, i.e., more likely to have their behavior swayed by strange compensation-related benefits. In that sense, it might actually make a difference in ways that changing strictly executive compensation wouldn't. The open question is whether the change is for the better or the worse. Only time will tell, of course, but I would note that the fears of rampant defections by employees to unregulated firms seem misplaced." Lund is based in White Plains, N.Y. News Contact: Gladwyn Lopez, glopez@rubenstein.com Phone: +1-212-843-9231 (10/26/09)

10. MARK ZUPAN, dean, Simon Graduate School of Business, UNIVERSITY OF ROCHESTER: "While the move is politically expedient (like providing bread and circuses and human/animal sacrifices in Roman times), it is economically unwise." News Contact: Charla Kucko, charla.kucko@simon.rochester.edu Phone: +1-585-273-4806 (10/26/09)


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EXPERT ALERTS

1. BUSINESS: PRESIDENT OBAMA'S ANNOUNCEMENT ON SMALL-BUSINESS STIMULUS. MICHAEL ALTER, advocate for small business and president of SUREPAYROLL, the online alternative for payroll services, is available to comment on President Obama's announcement regarding small-business stimulus: "The government is trying to solve the right problem, which is a lack of capital for small businesses. The challenge is that the way they are going about solving it will take too long. They've come up with a long-term solution for a near-term problem. The perfect example of why we need more immediate solutions is the government's announcement of a $15 billion program to purchase pools of SBA loans in March. It hasn't even been implemented yet. Meanwhile, small businesses all over the country are suffering. The government has to offer short-term liquidity, and the best way to do that is by cutting taxes or providing tax credits. Offer incentives to small businesses to hire new workers or purchase new machinery, then reward them with a tax credit so they can keep their businesses running and keep this economy going." Every month, for the company's Small-Business Report Card, SurePayroll aggregates data from more than 25,000 small businesses nationwide and tracks hiring and compensation as well as overall optimism within small-business owners by region. Alter is based in Chicago. News Contact: Marissa Hermo, mhermo@kruppnyc.com Phone: +1-212-886-6711 Web site: http://www.SurePayroll.com (10/26/09)

2. ECONOMY: IS GROWTH BACK ON TRACK? RON D'VARI, CEO of NEWOAK CAPITAL, an integrated financial advisory and capital markets group based in Manhattan: "Most economists agree the downturn has stabilized, yet it may be a while before we know we are on a steady growth path. Should we be trying to figure out the impact of the eventual rising global interest rates? Pundits may agree it is no time for across-the-board rate hikes, yet smart investors are already developing views as to how rate hikes would potentially impact global equities, bonds, commodities and currencies going forward. After the Lehman bankruptcy last fall, who would have been even thinking that just a year later, we would see robust growth across Asia and actual rate hikes in Australia? Authorities in many countries, including Korea and India, have already indicated considerations of rate adjustments, and others will follow when they become more confident that the global stimulation effects have a longer-term effect. While it seems too early, the rate and currency volatilities going forward have already worried the leaders of East Asian countries who have called for 'serious' talks on currency cooperation to avoid recurrence of violent fluctuations affecting regional trade tensions. As different countries adopt their own rate timing and policies, the relative currency movements will play a key role in determining regional growths and financial market movements. Longer-term dollar, euro and yen relative trends will be paramount and are key to watch, even if you are not investing internationally." News Contact: Marisa D'Vari, MDVari@newoakcapital.com (10/26/09)

3. ECONOMY: DOW AT 10,000: PARTY IN THE STREETS? NO. JAMES FRISCHLING, president and co-founder of NEWOAK CAPITAL, an integrated financial advisory and capital markets group based in Manhattan: "The stock market may be climbing higher, but don't expect to see people partying in the streets any time soon. With a stated unemployment rate of nearly 10 percent, and an unstated rate that is materially higher (by including those with fewer working hours and reduced wages), the 'total weekly pay' for the majority of the U.S. work force is down sharply. This index is down an unprecedented nine consecutive months, according to the Bureau of Labor Statistics, shattering the previous record of a two-month decline during the recession of 1981-1982. If statistics associated with jobs don't get you excited, the estimated savings rate for the third quarter was 3.7 percent, well above the 1.30 percent rate a year ago, and 0.20 percent in Q1 2008. All combined, the workers and the consumers are strained and playing defense. A meaningful and sustained recovery would seem lost without them." News Contact: Marisa D'Vari, MDVari@newoakcapital.com (10/26/09)

4. FINANCE: THE SPREADING GALLEON GROUP INSIDER-TRADING SCANDAL: AT LAST, DUE DILIGENCE. JOHN ALAN JAMES, adjunct management professor at PACE UNIVERSITY's Lubin School of Business in New York City, and expert on corporate governance and regulatory issues, created the first texts in English on laws governing companies in key European countries: "In the Galleon debacle, in contrast to Madoff, Stanford, Satyam, etc., finally, someone with responsibility did their due diligence. The reporting to the Securities and Exchange Commission by the New York Stock Exchange of 'unusual' intra-day trading in both Hilton Hotels and Google shares resulted in the SEC taking actions so lacking in the other cases. We can pass the most comprehensive regulations and staff compliance agencies up to the gills with experts, but unless boards of directors instill and oversee 'internal governance,' scoundrels will find loopholes." At Lubin, three years ago, James was the first to introduce into an MBA curriculum anywhere in the world a course covering corporate governance systems in the leading world economies. He is available to comment on the spreading Galleon Group insider-trading scandal. James recently appeared on Bloomberg radio and television to discuss the Madoff scandal and, among other media appearances, was quoted on CFO.com about the Satyam scandal. He is located in Stamford, Conn. News Contact: Bill Caldwell, wcaldwell@pace.edu Phone: +1-212-346-1597 Web site: http://www.pace.edu (10/26/09)

5. FINANCE: PLAIN LANGUAGE IN LEGAL AND FINANCIAL DISCLOSURE DOCUMENTS. DEBORAH BOSLEY, Ph.D., principal in the PLAIN LANGUAGE GROUP and associate professor of technical writing at UNC CHARLOTTE in Charlotte, N.C., is an expert in the use of plain language in legal and financial disclosure documents: "Executive compensation has again come under fire as companies that received large amounts of bailout money are being ordered by the Obama administration to slash pay for top officials. Whether a company received any government assistance or not, they can use this mandate as an opportunity to clarify public perceptions with clear, concise and forthright disclosures as they begin preparing annual proxy statements owed to shareholders in spring 2010 as part of regular compliance with SEC regulation, which require the use of plain language. Using plain language, particularly in compensation and analysis sections, can serve as an effective means of risk management. In revelations of an executive foregoing salary increases, or decreases in bonuses tied to pay-for-performance, these statements can provide marketing opportunities that show the company is responding to public and government concerns." Bosley helps public companies create 10-Ks, 10-Qs, and proxy statements to comply with or exceed the SEC regulations on plain language. She will be a featured speaker at the 2009 Center for Plain Language Symposium: National Press Club, Washington, D.C., Oct. 30. She is available to discuss why these annual proxy statements, including Compensation Discussion and Analysis (CD&A) sections, are now, more than ever, a critical form of communication. News Contact: Michael Henry, mhenry@wrayward.com Phone: +1-704- 926-1364 (10/26/09)

6. FINANCE: WHITE-COLLAR CRIME AND TECHNOLOGY. STEVE LEE, managing partner of STEVE LEE & ASSOCIATES, is a financial detective renowned for his dogged pursuit of white-collar criminals over the past 20 years: "As the recent Madoff case attests, today's biggest heists don't involve gun-toting, ski- mask-wearing desperados. While snake oil sales may in fact be the oldest profession, the size, scale and speed of modern day fraud have taken a giant leap forward, thanks to technology. The sheer velocity and complexity of transactions increases risk and decreases transparency. The accounting profession in general, and financial reporting in particular, have not really adapted to the electronic revolution. Too often -- outside of the Fortune 500 -- we have 20th Century reporting systems dealing with 21st Century technology." Lee is based in Los Angeles. News Contact: Cindy Rakowitz, cindy@brpublicrelations.com Phone: +1-818-783-3307 (10/26/09)

7. MARKETING: PORTRAIT OF TODAY'S FEMALE BOOMER. MARIAN SALZMAN, president of EURO RSCG WORLDWIDE PR, North America, can give readers insight into the female boomer: "Boomers, especially women, are a study in contrasts: the first generation liberated or the last one with regrets. The generation spanned watching gender labels define a woman's adult life and the possibilities and probabilities, fighting hard against those labels and never seeing them as limitations. It's time to retire the word 'retired,' not only because boomers aren't slowing down, but also because they're being forced to work longer in the down economy." Salzman recently revamped Euro PR's blog, Thinking Campaigns, sharing her ideas and insights on current topics relating to PR, marketing and social media, and offering statistics on social trends boomers are likely to follow. She is located in New York City. News Contact: Jamie Bernheim, jamie.bernheim@eurorscg.com Phone: +1- 212-367-6865 Web site: http://www.eurorscgprcampaigns.com (10/26/09)

8. MEDIA: BLOGOSPHERE SHOULD EMBRACE -- NOT FIGHT -- FTC MOVE TOWARD AD DISCLOSURE. JUSTIN CHOI, co-founder and CEO of CIE STUDIOS, an interactive entertainment and marketing company with "a swat team" of digital inventors, can discuss how the FTC's action is an opportunity to bring authenticity and openness to a process sorely in need of both: "As the Federal Trade Commission floats 'truth in blogging' rules -- aimed at persuading those promoting products for a fee to say so up front -- much of the blogging community has been critical of the FTC move as unnecessary and unenforceable. But if blogs, online forums and other social media don't provide a way for advertisers to participate, they will create demand for underhanded methods of promotion -- which doesn't serve anyone well. Solutions that encourage and enable transparency, and are effective for the advertisers, serve as a 'release valve,' removing the pressure from advertisers and agencies to engage in what could be considered untruthful and disingenuous advertising. Providing the option for transparent communication provides a 'win-win' alternative." Choi is located in Long Beach, Calif. News Contact: Rochelle Srigley-Herron, rochelle@edgecommunicationsinc.com Web site: http://www.ciestudios.com (10/26/09)

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