PROFNET EXPERT ALERTS: Policing Bank Pay / FTC and Blogs / High Unemployment

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TOPIC ALERT

Fed Plan to Police Bank Pay (10 responses)

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EXPERT ALERTS

1. Business: President Obama's Announcement on Small-Business Stimulus
2. Economy: Is Growth Back on Track?
3. Economy: Dow at 10,000: Party in the Streets? No.
4. Finance: The Spreading Galleon Group Insider-Trading Scandal
5. Finance: Plain Language in Legal and Financial Disclosure Documents
6. Finance: White-Collar Crime and Technology
7. Marketing: Portrait of Today's Female Boomer
8. Media: Blogosphere Should Embrace FTC Move Toward Ad Disclosure

FED PLAN TO POLICE BANK PAY
A proposal by the Federal Reserve would allow the central bank to review --
and veto -- banks' pay policies. Following are experts who can discuss the
legalities and viability of the proposal:
1. JOHN ALAN JAMES, adjunct management professor at PACE UNIVERSITY'sLubin
School of Business in New York City, and expert on corporate governance and
regulatory issues, created the first texts in English on laws governing
companies in key European countries: "Does the federal government, TARP and
all, have the legal right to mandate behavior in institutions registered under
state law? I do not believe it does, and this is worthy of a debate on its
constitutionality, starting at the Chancery Court in Delaware, and going all
the way to the Supreme Court. Will we all have to adopt one particular
approach to risk management? Impossible. Each organization has to design and
develop its own individualized policies relating to risk. Policies must
reflect the company's industry, its position and resources. These will always
be different. Therefore, the role of the Fed should be restricted to
evaluating the risk management policy and program, and periodic evaluation and
assessment of its effectiveness." At Lubin, three years ago, James was the
first to introduce into an MBA curriculum anywhere in the world a course
covering corporate governance systems in the leading world economies. He
recently appeared on Bloomberg radio and television to discuss the Madoff
scandal and, among other media appearances, was quoted on CFO.com about the
Satyam scandal. James is located in Stamford, Conn. News Contact: Bill
Caldwell, wcaldwell@pace.edu Phone: +1-212-346-1597 Web site:
http://www.pace.edu (10/26/09)
2. THOMAS MONDSCHEAN, professor of economics at DePAUL UNIVERSITY, Chicago,
is an expert on economic conditions and international economics, who has done
economic research as a consultant with the Federal Reserve: "Bank regulators
have a responsibility to manage risk-taking by banks mainly because of deposit
insurance, but also because of the important role banks play in providing
payment services and business credit (especially to small and medium-sized
businesses). The current crisis has demonstrated that poorly designed
compensation systems can lead to increased risk-taking. For example, bonus
programs that rewarded origination of mortgage loans, without regard to their
quality, clearly contributed to the subprime debacle. So there is no doubt in
my mind that monitoring compensation schemes should be part of regulatory risk
management. As for what types of compensation systems should be adopted, I
would generally favor plans that align more closely management with the long-
term interests of shareholders. For example, I would favor using restricted
stock awards that must be held for at least five years and can be taken back
if the bank has excessive losses during the holding period. This would focus
management attention on long-term performance and hopefully avoidance of
excessive risk-taking." News Contact: Robin Florzak, rflorzak@depaul.edu
Phone: +1-312-362-8592 (10/26/09)
3. JAMES BRICKLEY, Gleason Professor of Business Administration, William E.
Simon Graduate School of Business, UNIVERSITY OF ROCHESTER: "The Fed's
oversight would not be limited to top executives, but would include lower-
level employees, such as traders and loan officers. It is expected to affect
around 5,000 firms and tens of thousands of employees, with special attention
being paid to the nation's 25 largest banks. Compensation is currently a hot-
button issue, and attempts to limit the level and form of compensation in
banks and other corporations are likely to receive political support from the
general public. However, the Fed's actions are premature and ill conceived.
The likely negative consequence of the proposed action would be to reduce the
competitiveness of America's top banks -- through the loss of productive
employees and adoption of suboptimal pay practices. The Fed is unlikely to
have sufficient knowledge of either organizational theory or of a given
institution to do a good job, even if they appropriately focused more broadly
on a bank's overall organizational system. It will almost certainly get it
wrong if it focuses myopically on compensation. The result of this regulatory
oversight is likely to be a less efficient banking industry in the United
States." News Contact: Charla Kucko, charla.kucko@simon.rochester.edu Phone:
+1-585-273-4806 (10/26/09)
4. DAN BORGE, director in LECG's New York consulting firm, was the principal
designer of the first enterprise risk-management system, Bankers Trust's risk-
adjusted return on capital (RAROC), which became the model for the financial
services industry. Borge provided the following quote in a recent article,
"Will Fed's Exec Comp Rules Have Big Impact?" (American Banker, Oct. 23):
"It's a huge deal. Compensation committees at banks will be on the spot to
demonstrate they've chosen a compensation system that will not incentivize
risk. Doing that requires knowing who is taking the risk. Given the public
attention on this whole issue of pay, that tells me the Fed is serious about
transmitting that pressure to the banks." Borge is the author of "Boards:
Consider Risk When Determining Compensation" (September 2009), "A Return to
Credibility" (June 2009), and a forthcoming book, "The CFO's Role in
Navigating the Known, the Unknown, and the Unknowable." News Contact: Robin
Brassner, rbrassnernyc@gmail.com Phone: +1-212-262-7472 (10/26/09)
5. RANDALL HOLCOMBE, research fellow at THE INDEPENDENT INSTITUTE, is the co-
editor of the new book "Housing America: Building Out of a Crisis": "The idea
that bureaucrats have a better idea for how compensation contracts should be
structured than those in the business community makes little sense on the face
of it. But I see another danger here that hasn't been sufficiently explored:
even if some oversight over bankers' compensation were warranted, the Fed is
not the right organization to do it. For one thing, the Fed itself has
relatively little oversight. But the largest factor is that the Fed's primary
responsibility is controlling the money supply to ensure price level
stability. The Fed will be most effective in that task when that is its
primary focus, and giving it the power of oversight over bankers' compensation
will be an added distraction. Bureaucratic oversight of executive compensation
is a bad idea by itself, but it's a really bad idea to give this power to the
Fed." Holcombe is located in Tallahassee, Fla. News Contact: Wendy Honett,
whonett@independent.org Phone: +1-510-632-1366, ext. 116 Web site:
http://www.independent.org/aboutus/person_detail.asp?id=528 (10/26/09)
6. TERRY CONNELLY, dean of the Ageno School of Business, GOLDEN GATE
UNIVERSITY: "This move by the Fed has been coming like Christmas; it is
clearly legal, with the cover of the Fed's supervisory powers. The Fed is only
trying to do what Warren Buffett tried and failed to do unilaterally while he
was in charge of Salomon Brothers. A lot of good and very talented people left
the firm when others swooped in to hire them." Connelly, who has 30 years
experience in investment banking, law and corporate strategy and has run Wall
Street compensation systems, asserts that the Fed will impose the same
standard on every firm. He is based in San Francisco. News Contact: Serene
Buckley, serene@mortarpr.com Phone: +1-415-772-9907, ext. 117 (10/26/09)
7. STEVE STANEK, policy advisor on tax issues and managing editor of Budget &
Tax News, a monthly publication of THE HEARTLAND INSTITUTE, a libertarian
free-market think tank based in Chicago: "I can think of nothing that
encourages reckless risk-taking more than what the government has already
done: rescue companies that should have failed. Executive pay would not be an
issue if the executives had lost their shirts and professional reputations, as
should have happened in a country that supposedly believes in free markets and
capitalism. The best regulator of executive pay is a free market in which
executives lose their jobs when they drive their companies to ruin." Web site:
http://www.heartland.org (10/26/09)
8. MAUREEN MARTIN, attorney and senior fellow for legal affairs, THE
HEARTLAND INSTITUTE, a libertarian free-market think tank based in Chicago: "I
question the legal authority of the Fed to regulate bank compensation policies
in the manner proposed. The Fed is using 'guidance' to accomplish this, rather
than through formal regulations. This decision to use guidance means the Fed
can proceed in looser fashion. First, it takes the proposal out of the
requirements of due process -- formal notice and an opportunity to be heard --
that apply when regulations are proposed. A step of this importance ought to
be accomplished by a formal deliberative process with full participation, not
only by the public, but also the full regulated community. Second, the Fed is
proposing to tailor standards for its review of compensation policies on a
bank-by-bank basis. That means there will be differing conclusions reached
about whether the policy is 'unsound' or unsafe. Without a bright line
standard, abuses can proliferate." Web site: http://www.heartland.org
(10/26/09)
9. ANDREW LUND, associate professor of law, PACE LAW SCHOOL: "So much energy
has been focused on executive compensation, which no one has demonstrated had
anything to do with the crisis (in fact, some researchers have shown that no
link between the two appears to exist). This may be because executives'
behavior is constrained in any number of ways beyond the parameters of their
compensation. What the Fed's rules do is reach down to the level of the
employee who seems less constrained, i.e., more likely to have their behavior
swayed by strange compensation-related benefits. In that sense, it might
actually make a difference in ways that changing strictly executive
compensation wouldn't. The open question is whether the change is for the
better or the worse. Only time will tell, of course, but I would note that the
fears of rampant defections by employees to unregulated firms seem misplaced."
Lund is based in White Plains, N.Y. News Contact: Gladwyn Lopez,
glopez@rubenstein.com Phone: +1-212-843-9231 (10/26/09)
10. MARK ZUPAN, dean, Simon Graduate School of Business, UNIVERSITY OF
ROCHESTER: "While the move is politically expedient (like providing bread and
circuses and human/animal sacrifices in Roman times), it is economically
unwise." News Contact: Charla Kucko, charla.kucko@simon.rochester.edu Phone:
+1-585-273-4806 (10/26/09)

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EXPERT ALERTS

1. BUSINESS: PRESIDENT OBAMA'S ANNOUNCEMENT ON SMALL-BUSINESS STIMULUS.
MICHAEL ALTER, advocate for small business and president of SUREPAYROLL, the
online alternative for payroll services, is available to comment on President
Obama's announcement regarding small-business stimulus: "The government is
trying to solve the right problem, which is a lack of capital for small
businesses. The challenge is that the way they are going about solving it will
take too long. They've come up with a long-term solution for a near-term
problem. The perfect example of why we need more immediate solutions is the
government's announcement of a $15 billion program to purchase pools of SBA
loans in March. It hasn't even been implemented yet. Meanwhile, small
businesses all over the country are suffering. The government has to offer
short-term liquidity, and the best way to do that is by cutting taxes or
providing tax credits. Offer incentives to small businesses to hire new
workers or purchase new machinery, then reward them with a tax credit so they
can keep their businesses running and keep this economy going." Every month,
for the company's Small-Business Report Card, SurePayroll aggregates data from
more than 25,000 small businesses nationwide and tracks hiring and
compensation as well as overall optimism within small-business owners by
region. Alter is based in Chicago. News Contact: Marissa Hermo,
mhermo@kruppnyc.com Phone: +1-212-886-6711 Web site:
http://www.SurePayroll.com (10/26/09)
2. ECONOMY: IS GROWTH BACK ON TRACK? RON D'VARI, CEO of NEWOAK CAPITAL, an
integrated financial advisory and capital markets group based in Manhattan:
"Most economists agree the downturn has stabilized, yet it may be a while
before we know we are on a steady growth path. Should we be trying to figure
out the impact of the eventual rising global interest rates? Pundits may agree
it is no time for across-the-board rate hikes, yet smart investors are already
developing views as to how rate hikes would potentially impact global
equities, bonds, commodities and currencies going forward. After the Lehman
bankruptcy last fall, who would have been even thinking that just a year
later, we would see robust growth across Asia and actual rate hikes in
Australia? Authorities in many countries, including Korea and India, have
already indicated considerations of rate adjustments, and others will follow
when they become more confident that the global stimulation effects have a
longer-term effect. While it seems too early, the rate and currency
volatilities going forward have already worried the leaders of East Asian
countries who have called for 'serious' talks on currency cooperation to avoid
recurrence of violent fluctuations affecting regional trade tensions. As
different countries adopt their own rate timing and policies, the relative
currency movements will play a key role in determining regional growths and
financial market movements. Longer-term dollar, euro and yen relative trends
will be paramount and are key to watch, even if you are not investing
internationally." News Contact: Marisa D'Vari, MDVari@newoakcapital.com
(10/26/09)
3. ECONOMY: DOW AT 10,000: PARTY IN THE STREETS? NO. JAMES FRISCHLING,
president and co-founder of NEWOAK CAPITAL, an integrated financial advisory
and capital markets group based in Manhattan: "The stock market may be
climbing higher, but don't expect to see people partying in the streets any
time soon. With a stated unemployment rate of nearly 10 percent, and an
unstated rate that is materially higher (by including those with fewer working
hours and reduced wages), the 'total weekly pay' for the majority of the U.S.
work force is down sharply. This index is down an unprecedented nine
consecutive months, according to the Bureau of Labor Statistics, shattering
the previous record of a two-month decline during the recession of 1981-1982.
If statistics associated with jobs don't get you excited, the estimated
savings rate for the third quarter was 3.7 percent, well above the 1.30
percent rate a year ago, and 0.20 percent in Q1 2008. All combined, the
workers and the consumers are strained and playing defense. A meaningful and
sustained recovery would seem lost without them." News Contact: Marisa D'Vari,
MDVari@newoakcapital.com (10/26/09)
4. FINANCE: THE SPREADING GALLEON GROUP INSIDER-TRADING SCANDAL: AT LAST, DUE
DILIGENCE. JOHN ALAN JAMES, adjunct management professor at PACE
UNIVERSITY'sLubin School of Business in New York City, and expert on corporate
governance
and regulatory issues, created the first texts in English on laws governing
companies in key European countries: "In the Galleon debacle, in contrast to
Madoff, Stanford, Satyam, etc., finally, someone with responsibility did their
due diligence. The reporting to the Securities and Exchange Commission by the
New York Stock Exchange of 'unusual' intra-day trading in both Hilton Hotels
and Google shares resulted in the SEC taking actions so lacking in the other
cases. We can pass the most comprehensive regulations and staff compliance
agencies up to the gills with experts, but unless boards of directors instill
and oversee 'internal governance,' scoundrels will find loopholes." At Lubin,
three years ago, James was the first to introduce into an MBA curriculum
anywhere in the world a course covering corporate governance systems in the
leading world economies. He is available to comment on the spreading Galleon
Group insider-trading scandal. James recently appeared on Bloomberg radio and
television to discuss the Madoff scandal and, among other media appearances,
was quoted on CFO.com about the Satyam scandal. He is located in Stamford,
Conn. News Contact: Bill Caldwell, wcaldwell@pace.edu Phone: +1-212-346-1597
Web site: http://www.pace.edu (10/26/09)
5. FINANCE: PLAIN LANGUAGE IN LEGAL AND FINANCIAL DISCLOSURE DOCUMENTS.
DEBORAH BOSLEY, Ph.D., principal in the PLAIN LANGUAGE GROUP and associate
professor of technical writing at UNC CHARLOTTE in Charlotte, N.C., is an
expert in the use of plain language in legal and financial disclosure
documents: "Executive compensation has again come under fire as companies that
received large amounts of bailout money are being ordered by the Obama
administration to slash pay for top officials. Whether a company received any
government assistance or not, they can use this mandate as an opportunity to
clarify public perceptions with clear, concise and forthright disclosures as
they begin preparing annual proxy statements owed to shareholders in spring
2010 as part of regular compliance with SEC regulation, which require the use
of plain language. Using plain language, particularly in compensation and
analysis sections, can serve as an effective means of risk management. In
revelations of an executive foregoing salary increases, or decreases in
bonuses tied to pay-for-performance, these statements can provide marketing
opportunities that show the company is responding to public and government
concerns." Bosley helps public companies create 10-Ks, 10-Qs, and proxy
statements to comply with or exceed the SEC regulations on plain language. She
will be a featured speaker at the 2009 Center for Plain Language Symposium:
National Press Club, Washington, D.C., Oct. 30. She is available to discuss
why these annual proxy statements, including Compensation Discussion and
Analysis (CD&A) sections, are now, more than ever, a critical form of
communication. News Contact: Michael Henry, mhenry@wrayward.com Phone: +1-704-
926-1364 (10/26/09)
6. FINANCE: WHITE-COLLAR CRIME AND TECHNOLOGY. STEVE LEE, managing partner of
STEVE LEE & ASSOCIATES, is a financial detective renowned for his dogged
pursuit of white-collar criminals over the past 20 years: "As the recent
Madoff case attests, today's biggest heists don't involve gun-toting, ski-
mask-wearing desperados. While snake oil sales may in fact be the oldest
profession, the size, scale and speed of modern day fraud have taken a giant
leap forward, thanks to technology. The sheer velocity and complexity of
transactions increases risk and decreases transparency. The accounting
profession in general, and financial reporting in particular, have not really
adapted to the electronic revolution. Too often -- outside of the Fortune 500
-- we have 20th Century reporting systems dealing with 21st Century
technology." Lee is based in Los Angeles. News Contact: Cindy Rakowitz,
cindy@brpublicrelations.com Phone: +1-818-783-3307 (10/26/09)
7. MARKETING: PORTRAIT OF TODAY'S FEMALE BOOMER. MARIAN SALZMAN, president of
EURO RSCG WORLDWIDE PR, North America, can give readers insight into the
female boomer: "Boomers, especially women, are a study in contrasts: the first
generation liberated or the last one with regrets. The generation spanned
watching gender labels define a woman's adult life and the possibilities and
probabilities, fighting hard against those labels and never seeing them as
limitations. It's time to retire the word 'retired,' not only because boomers
aren't slowing down, but also because they're being forced to work longer in
the down economy." Salzman recently revamped Euro PR's blog, Thinking
Campaigns, sharing her ideas and insights on current topics relating to PR,
marketing and social media, and offering statistics on social trends boomers
are likely to follow. She is located in New York City. News Contact: Jamie
Bernheim, jamie.bernheim@eurorscg.com Phone: +1- 212-367-6865 Web site:
http://www.eurorscgprcampaigns.com (10/26/09)
8. MEDIA: BLOGOSPHERE SHOULD EMBRACE -- NOT FIGHT -- FTC MOVE TOWARD AD
DISCLOSURE. JUSTIN CHOI, co-founder and CEO of CIE STUDIOS, an interactive
entertainment and marketing company with "a swat team" of digital inventors,
can discuss how the FTC's action is an opportunity to bring authenticity and
openness to a process sorely in need of both: "As the Federal Trade Commission
floats 'truth in blogging' rules -- aimed at persuading those promoting
products for a fee to say so up front -- much of the blogging community has
been critical of the FTC move as unnecessary and unenforceable. But if blogs,
online forums and other social media don't provide a way for advertisers to
participate, they will create demand for underhanded methods of promotion --
which doesn't serve anyone well. Solutions that encourage and enable
transparency, and are effective for the advertisers, serve as a 'release
valve,' removing the pressure from advertisers and agencies to engage in what
could be considered untruthful and disingenuous advertising. Providing the
option for transparent communication provides a 'win-win' alternative." Choi
is located in Long Beach, Calif. News Contact: Rochelle Srigley-Herron,
rochelle@edgecommunicationsinc.com Web site: http://www.ciestudios.com
(10/26/09)
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