The Government will investigate whether Britain's companies are being properly run or whether failures in the checks and balances at the top of firms is undermining the market for investment. Secretary of State for Business Vince Cable has launched a consultation into corporate governance and whether failures in that process are …
Want guaranteed compliance?: Make directors and officers personally and severally liable
LEE Kwan-Yews little dictatorship got it right - hold directors and officers personally liable for their own and their colleagues errors.
If they break any corporate law, they are banned from holding any office, in any company - public or private - for at least 10 years, anywhere.
It's only when directors and officers spheroids are squeezed do they wake up and actually care.
They ought to limit the ratio between the lowest paid employee and the highest paid employee, and disallow sub-contracting.
Pot & kettle comes to mind.
ALL politicians are concerned with the short-term; think further ahead & they won't get re-elected.
Everyone knows what is being alleged is true
...but good luck trying to prove it, and double good luck on trying to fix it. I would love for them to prevail - I'm not being sarcastic.
That said, they need to try and prove that, for example, a particular layoff was *only* done to pump the balance sheet, meet analyst projections, pump the stock price, ensure exec bonuses, etc... *and* that this was not in the long term interest of the investors.
The first is easy - it has become common management practice. It's that second one that is next to impossible in that in stocks, price is pretty much everything so if it helps pump (even short term) the price it would be a very hard sell to convince people that this is not in the shareholder's interest.
I think they'd do better taking all the stock analysts out to the field and shooting them. Those f'ing leeches rule the world with their projections... and other than comparing balance sheets between similar companies in am industry and divining "important" trends in the balance sheets, these duechebags know f*** all about what these companies do or how they work... yet the Cxx's and Board will grovel for these asshats while ignoring their shareholders.
The officers and the board should be about more than doing what the analysts tell them to do - they should be about building successful and sound business.
Lee Kwan Yew had Apps for a lot of things!
Spitting - Cane Application
Drugs - Hanging Application
Voting against LKW - Slum-clearance Application
Long Hair - Back to the Back of Queue Application
Chewing Gum - Ban Sales Application
Cheating PUB - 14 year Choi Application
Cheating directors/officers - 5 year ban Application
Critical overseas newspapers - scissors Application
No land left - dig up the graveyards Application
and none required a smartphone
@Tempest - Lee Kwan Yew etc...
Tempest you have just made a critical thinking error. Just because one thing he said was true doesn't make everything he said true. Conversely you cannot argue that making directors and officers personally liable is invalidated by anything else he said or done.
For example, if Hitler had said 2*3=6 that wouldn't have been invalidated by him being a Psychopathic evil tyrant. 2*3 is still equal to 6.
A modest proposal
Pass a law that says all bonuses are relative to company profit:
bonus = salary * ( profit / turnover )
That's it, you read right! If the company makes a 5% loss, those in the bonus scheme pay the company 5% of their salary.
...that's really no different than how things are today - most CEO's are compensated based on the stock price performance which is correlated relatively well with profit.
The problem here is illustrated pretty well by a situation I witnessed: the CEO had a contract, somewhere in the neighborhood of 5 years at which time he was supposed to get the stock price to $65 (or something like that) from the $30 range it was at when he came on board. Our intrepid CEO, working with the Board and the Stock Analysts more or less cooked the books (completely legally and GAAP compliant mind you) to get the price there during that timeframe - showing significant revenue and profit growth rates through fundamentally unsound business practices (i.e. signing bad deals, doing quarterly layoffs, and a host of other completely legal "tricks" to get the balance sheet looking the right way for the analysts).
He made his target price, received his bonus per his contract that the board had negotiated, and a few months later the growth rates that had driven the stock price up stalled - and the bad deals finally came to light as our cash flow went into full crisis mode. Our $65+ dollar stock tanked to around $10... and the board sent him packing with his ~$30M bonus (that he had quite clearly, and legally earned through the terms the board put into his contract) fully intact.
That's the problem here. Lets say Ballmer gutted Microsoft's R&D... on the short term that would make the balance sheet look really good, and if the analysts/board/public didn't really catch on to the long term consequences that could make the stock price go up - it absolutely would make the profit margins go up regardless, so in at least one scenario there's a good chance that basing compensation on profit is potentially worse than on stock price.
The problem ultimately is that the boards and the execs want performance incentives in the contracts - and there's really no good way right now, IMO, to judge the long term soundness of an exec's performance. Stock price, which is what is typically used, is probably the best holistic yardstick... but it still fails as the balance sheet (which is about as far as most analysts go) is just a point in time snapshot, and it can be gamed quite successfully.