Bold as brass, Wall Street firms are again talking big bonuses. However, a proposal that Australian super funds are being urged to sign would give shareholders of US public companies more of a say in the matter, FIONA REYNOLDS writes.
You’ve got to hand it to the good folk on Wall Street. They certainly know how to fire up the international debate on executive pay. At the same time as some of the world’s leading governance experts were meeting in Sydney last month to discuss the role played by poor remuneration practices in the current economic malaise, news was filtering in from New York that Goldman Sachs executives were poised to receive yet another round of lucrative pay bonuses.
It was day three of the International Corporate Governance Network (ICGN) conference – an annual event that draws speakers and delegates from more than 45 countries, including senior representatives from some of the world’s biggest pension/superannuation funds including major funds in Australia. The ICGN was launched in 1995 by pension funds with the objective of lifting governance standards in listed companies across the globe and has developed into the premier governance body in the world.
Delegates attending the conference – held for the first time in Sydney – reacted to the Goldmans announcement with a mixture of frustration, dismay and alarm. While speaker after speaker attending the three-day conference stressed the need for a radical re-think on corporate pay structures that promoted excessive risk-taking, the good times were rolling once again on Wall Street. But richly-rewarded executives weren’t the only ones to come under fire at the conference. The world’s financial gatekeepers – the regulators, accountants, auditors and other oversight bodies – also came in for harsh criticism.
In particular, regulators in the United States were roundly criticised for having failed to respond decisively when they realised that markets had mispriced risk, and for allowing banks to operate with too little capital and excessive leverage. Complacency among institutional investors was also seen as contributing to the crisis. There was broad agreement that investors should be more engaged with the companies they owned; that they should have cared more. Keynote speaker and former US vice president, Al Gore, said companies and investors needed to “break the spell of the short-termism” if real progress was to be achieved.
Gore described the current obsession among both corporates and institutional investors on quarterly performance data as “functionally insane”, while noting that the average investor holding period for stocks had shrunk to 10 months, compared to seven years in the 1970s. Former World Bank vice-president Jules Muis said one of the most important lessons to be learnt from the recent crisis was for investors and regulators to prohibit the marketing of financial products that no one really understands.