Verret in FOXBusiness: Government as Activist Shareholder
In a FOXBusiness article, Professor J.W. Verret expressed concern over the unintended consequences of rising levels of intervention into the private sector that have been a direct result of unprecedented government equity stakes in large corporations.
Verret has argued that the leverage held by the government is too powerful for the firms to resist, and that reforms demanded by the government may function more as political moves than as benefits to the firms' well being.
“Pay restrictions will also limit banks in their competition for top talent, which risks exacerbating the banking crisis,” said Verret in recent testimony before Congress. “Immediately following the announcement of compensation restrictions by the Obama Administration, Bank of America indicated that Deutsche Bank poached 12 of its highest performing executives and other reports indicated that UBS was hiring financial advisors from TARP firms with compensation increases as high as 200%. In a global environment, restrictions may place American banks at a competitive disadvantage,” he said.
Taxpayers May Not Be Activist Shareholders, but Government Is, FOXBusiness, November 19, 2009. By Dunstan Prial.
"But anyone wondering how their interests as shareholders in these companies are being represented by the government need look no further perhaps than the Obama administration’s recent crackdown on executive pay.
"Consider the results of a recent ABC News/Washington Post survey in which 71% of the respondents said they supported the president’s plans to restrict pay for top executives at companies that received significant amounts of bailout money.
"Clearly aware of public sentiment toward Wall Street in general and bailed out banks specifically, the Treasury Department, which actually owns the government’s stakes in troubled firms, has taken on the role of an activist shareholder.
"Treasury’s point man, mediator Kenneth Feinberg, sent shock waves through the U.S. banking system last month by ordering pay cuts averaging 50% at the seven bailed out companies for which he was charged with setting compensation rates.
"Elsewhere, the Federal Reserve has cracked down on banks and credit card companies, reigning in service charges and late fees assessed to consumers that used to generate billions of dollars in revenues for the firms.
"This, apparently, is the government’s answer to how it will vote its shares now that it owns sizable stakes in these companies: it will affect change through leverage and actual legislation."