SENATE BILL: Corporate Governance Reform Act (Law'd)

[Southern Senator North Carolina Yankee]

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Sponsor: TJ in Cleve

[Southern Senator North Carolina Yankee]

Ah yes, some real bills.

TJ you have 24 hours to post why this bill is important.

[TJ in Oregon]

The first section establishes a separate federal court to decide corporate suits. This is important because it ensures corporate law disputes will be settled by a judge versed specifically in corporate law instead of clogging up the court system. This is the system used in the state of Delaware.

The second and third sections outline a necessary improvement to the corporate salary structure. In 1994, the US Congress passed a million dollar pay cap on executive salary (by 'cap' I mean that the accounting rules were structured so that larger salaries could no longer be deducted from corporate income). After that, the primary method of executive compensation changed from base salary to the stock option. For those of you who don't know, a stock option is a method of payment by giving an employee the option of buying company stock at the price of at a fixed date but the purchase happens later if at all. For example, if a stock is trading at $50 per share when the stock option is granted, the person receiving the option can buy the stock at some later date for $50 per share, regardless of the current price. They can also choose not to buy the stock at all if the price goes down. This creates a myriad of wacky incentives for executives to take action against the interest of the company and its shareholders. The government ought to be leveraging against payment by this method rather than encouraging it.

The last section lists a collection of practices that can sometimes be bad signs of a company's corporate governance. Many of them have legitimate reasons for doing one or more of the practices, but if the company decides to do them, this ought to be known publically and explained.

[The world will shine with light in our nightmare]

Right now, I am leaning for this bill.

[Kaine for Senate '18]

Right now, I am leaning for this bill.

Same.  Although I wouldn't mind lowering the 7% figure to 5%.

[Southern Senator North Carolina Yankee]

I support this, so I locked the Corporate Lobbyists in the Cloakroom. Don't go in there!!!

[ilikeverin]

Lovely, and thanks for the explanation, TJ

[Sbane]

I support this.

[tpfkaw]

If the honorable sponsor presented a bill containing merely sections 1 and 2, I would certainly support it, but seeing how this is one of those types of "reform" that involve overturning certain statist restrictions while introducing new ones, it's significantly more ambiguous.  I sense that if or when this bill is passed and signed, the restrictions in sections 3 and 4 will remain, but the "salary cap" will be brought back and most of the judges appointed to the Court of Chancery will have a deep anti-business animus.

I also believe the honorable sponsor lacks understanding with regards to price signals in a free market.  If a publicly-traded company is known to lack transparency to shareholders, or to heavily dilute its shares for the purpose of executive compensation, then that will deter investors from investing in the first place, or cause them to sell if they suddenly begin such practices.  Bad business practices do not need to be banned because the free marketplace of investors punishes them already.  The most sophisticated frauds, the ones that dupe investors out of billions, are ones in which everything appears to be in perfect order without much (on the surface) smell of fishiness about them at all.  When a whiff of fishiness is detected; as in the case of Enron or Madoff, the whole thing comes crashing down with astonishing rapidity and well before the regulators have even arrested the responsible parties.

[TJ in Oregon]

If the honorable sponsor presented a bill containing merely sections 1 and 2, I would certainly support it, but seeing how this is one of those types of "reform" that involve overturning certain statist restrictions while introducing new ones, it's significantly more ambiguous.  I sense that if or when this bill is passed and signed, the restrictions in sections 3 and 4 will remain, but the "salary cap" will be brought back and most of the judges appointed to the Court of Chancery will have a deep anti-business animus.

The question of bias in the judicial system cannot be simply solved by an act of congress and such is the political reality in Atlasia. And fearing a bad policy will later be reinstated isn't a reason not to repeal it.

I also believe the honorable sponsor lacks understanding with regards to price signals in a free market.  If a publicly-traded company is known to lack transparency to shareholders, or to heavily dilute its shares for the purpose of executive compensation, then that will deter investors from investing in the first place, or cause them to sell if they suddenly begin such practices.  Bad business practices do not need to be banned because the free marketplace of investors punishes them already.  The most sophisticated frauds, the ones that dupe investors out of billions, are ones in which everything appears to be in perfect order without much (on the surface) smell of fishiness about them at all.  When a whiff of fishiness is detected; as in the case of Enron or Madoff, the whole thing comes crashing down with astonishing rapidity and well before the regulators have even arrested the responsible parties.

It is true that one cannot claim these regulations would have prevented the scandals at Enron or by Madoff (though Sarbanes-Oxley may have helped to prevent Enron if increased regulation made it clear earlier that everything wasn't in perfect order), reducing the role of stock options could have prevented someone like Al Dunlap from running around from company to company making a quick dollar by wrecking the place because he would lose the extreme incentives with no downside risk. The purpose of Section 3 is to undo the bad practice of using primarily stock options for executive compensation that was caused by the pay cap. The government caused this mess and simply repealing the cap isn't enough to fix it without discouraging the use of stock options. Perhaps at some point in the future when stock options are no longer the accepted norm it will no longer be necessary.

[CLARENCE 2015!]

TJ- I appreciate the thought and work you put into this legislation...I support it 100  %

[Southern Senator North Carolina Yankee]

Shall I open a final vote here?

[TJ in Oregon]

It appears we are ready for one.

[Southern Senator North Carolina Yankee]

Listen Senators, all you gotta do, is say the right words and I'll be coming through...

A vote on final passage of the Corporate Governance Reform Act is now undeway, please vote Aye, Nay or Abstain.

[Southern Senator North Carolina Yankee]

Aye

[TJ in Oregon]

Aye

[The world will shine with light in our nightmare]

Aye.

[Kaine for Senate '18]

Aye.

[LastVoter]

Aye, although I am not sure what the status quo is.

[CLARENCE 2015!]

Aye

[Southern Senator North Carolina Yankee]

Vote on Final Passage of the Corporate Governance Reform Act:

Aye (6): Ben, Clarence, NC Yankee, Scott, Seatown and TJ in Cleve
Nay (0):
Abstain (0):

Didn't Vote (4): AndewCT, ILV, Sbane and Wormyguy

With six votes in the affirmative and none in the negative, the bill is passed and presented to the President for executive action. As there were no Nays recored prior to six ayes having been entered, no 24 hour vote change period is required.

[Fmr President & Senator Polnut]

[Sbane]

Damn this was the quickest vote ever. Aye for the record.

[Southern Senator North Carolina Yankee]

Damn this was the quickest vote ever. Aye for the record.

I wanted that feather in my cap. Just Kidding!

Sorry! Normally, I wouldn't do that but I wanted to save some of the waisted days from the 7th through the 10th here. When I saw it had six ayes, I jumped at the chance. I was concerned that Wormyguy would vote nay before my dial up would allow me to end the vote and thus force a 24 hour vote change period, so that was also the fastest I ever wrote a vote ending post, too.