At a time when financial regulation is a forefront issue in the presidential race let’s take a closer look at the canary in the deregulation coal mine.
One of the many provisions of Dodd-Frank which has only recently been made effective is a provision to tighten the reigns on compensation committees. Enron was one of the first and most flagrant abusers of executive compensation. The comment letter of the Permanent Subcommittee on Investigations to the SEC regarding the Executive Compensation provision of Dodd-Frank outlines their findings in detail which were also touched upon during the film.
In 2002, the Subcommittee conducted an inquiry into the Enron scandal, including issues related to the Board of Directors’ oversight of executive pay. The Subcommittee found that the Board had “failed to safeguard Enron shareholders,” including by allowing Enron to engage in “excessive executive compensation.” The Subcommittee also found that the Board had “failed to monitor the cumulative cash drain” caused by Enron’s 2000 executive compensation plans, and “failed to monitor or halt abuse” by Enron’s Board Chairman and Chief Executive Officer (CEO) Kenneth Lay of a company-financed line of credit… When asked about these matters at a hearing, the head of Enron’s Compensation Committee said that his committee had no duty to monitor the CEO’s loan activity and declined to criticize Mr. Lay’s conduct.
Dodd-Frank aims to put controls in place that will prevent this type of behavior going forward.
Where do the candidates stand on regulation? Obama’s administration, of course, spearheaded Dodd-Frank which seeks to great greater transparency and more accountability in the market. Romney made a very concerted effort in Wednesday’s debate to not take a specific stance on regulation. He’s not entirely against having any regulation at all but he’s not clear on exactly what type of regulation he feels needs to be in place. One thing he made clear is that he’s against designating banks as too big to fail. If we give him a week though he may change his mind.
Let’s hear the candidates explain it for themselves.
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