[ql06] Re: CRIMINAL:S.E.C. Pursues Time Warner Investigation
- From: "K.K. Campbell -- LAW'06" <2kc16@xxxxxxxxxxxxxxxx>
- To: <ql06@xxxxxxxxxxxxx>
- Date: Wed, 22 Oct 2003 10:15:05 -0400
RE: Steve's comments on Sheldon's posting.
Here's an article I kept from August. Doubt these (modest)
recommendations will take force in U.S. because of Republican lobbying.
Remember: The central tenet of the whole Reagan thrust to decrease
regulation (less SEC interference) is that the "invisible hand" of the
market will bring about greater wealth for all. There's is an
ideological view, and facts don't really weigh heavily upon it.
Instead of their fantasy-land economics creating real world wealth (as
they use the great Adam Smith as a puppet for their bullshit), what we
get is, as Sheldon notes, the "invisible hand" invisibly picking the
visible pocket of the visible public.
Ken.
--
The understanding of the greater part of men are
necessarily formed by their ordinary employments.
-- Adam Smith, Wealth of Nations
--- cut here ---
A tough message to corporate America
Capping directors' pay among 78 recommendations to avoid a repeat of
'odious practices' at WorldCom
Jill Treanor
Wednesday August 27, 2003
The Guardian
WorldCom, the largest corporate failure in America's history, should cap
its directors' pay at $15m, give shareholders more power and bolster its
board after the $11bn accounting fraud that drove the telecommunications
company to its knees, a United States court investigator recommended
yesterday.
As he published his 150-page report, Richard Breeden, appointed by a New
York court, made it clear his recommendations for WorldCom should be
adopted by the rest of corporate America, which was damaged by a wave of
scandals after the collapse of the dotcom boom.
His 78 recommendations are aimed at bolstering corporate governance at
the new-look WorldCom, now known as MCI, to prevent a re-run of the
"odious practices" that allowed the company to amass $41bn (£26bn) of
debt in the US's largest accounting fraud.
Mr Breeden, a former chairman of US regulator the securities and
exchange commission, painted a damning picture of the company under its
previous chief executive and founder, Bernie Ebbers, who was allowed a
"nearly imperial reign" over the company.
Mr Ebbers, who left with a golden goodbye of an estimated $50m, was
allowed to run a "giant compensation slush fund" to hand out to favoured
executives and convinced the board to "lend" him $400m personally. He
was also allowed use of the corporate jet for $1 a month.
Mr Breeden said such levels of pay "went beyond any rational calculation
of value added by senior executives".
To ensure they are not repeated, he recommends that executives should be
allowed to earn more than $15m a year only with the prior approval of
shareholders.
Mr Breeden made it clear that WorldCom was not alone among telecoms
companies during the dotcom boom in handing out large pay cheques.
"Certainly, the largesse for Ebbers was part of a broader pattern across
the industry and the large US corporations generally of stratospheric
compensation levels," Mr Breeden said.
He cast doubt on the effectiveness of the practice in boardrooms of
giving options and shares to directors, recommending more payment in
cash and bonuses rather than shares or options.
But the report does not advocate more intervention from government in
the form of new laws.
The Sarbane-Oxley laws to boost company boards, introduced in the wake
of corporate scandals such as WorldCom, Enron and Tyco, have been
harshly criticised on both sides of the Atlantic for being overly
zealous.
"This report calls for more democracy for shareholders so that they can
more effectively protect themselves," Mr Breeden said. While he notes
"shareholder activism" is a not a panacea for corporate governance
problems, he believes investors should be given more opportunity to make
their views known to the board.
As well as being given a vote on directors' pay, shareholders should be
allowed to veto new directors and be given an electronic "town hall"
form of communication with the board.
He also suggested sweeping changes to the way in which the board itself
is structured to end the "cronyism" of the past. No director should
serve for more than 10 years and a new one should join every year.
In addition, the chairman and chief executive role - traditionally
combined at US companies - should be separated. This is already regarded
as best corporate governance in the UK. The chairman should be
non-executive and serve for no more than six years.
Michael Capellas, the new MCI chairman, said: "The company has already
implemented many of the proposed corporate reforms, but we know we have
to do even more to regain public trust".
The company is bound by the recommendations unless it applies to the
court.
Despite WorldCom's problems, MCI is expected to emerge from chapter 11
bankruptcy protection later this year.
Restoring trust: main proposals
-------------------------------
Boardroom
* The role of chairman and chief executive should be separate; the
chairman should be non-executive
* Directors should not serve for more than 10 years
* An independent audit committee of not less than three members
should be created
* A governance committee of three members should be set up to
oversee nominations to the board
Shareholders
* An electronic "town hall" should be established to enable
shareholders to communicate with the board
* They should be given a vote on directors' pay
Pay
* Pay should be limited to $15m without shareholders' prior
approval
* It should be in cash, rather than shares or options; not less
than 50% but ideally 60-75% of total compensation should be
in cash
* Payoffs should be limited to $10m for the chief executive and
no more than $5m for any other employee
* There should be no personal use of corporate aircraft
Accounting
* A target should be set of paying 25% of net income in
dividends to shareholders
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