Corporate Responsibility

One plausible report, of unknown credibility, says that Treasury intends to ignore the CEO pay restrictions imposed on EESA. The issue is not itself important since executive pay did not cause the crisis, but serves as a useful point of departure to discuss who should bear the costs of the crisis. In short, both the overly risky investment strategy and out-sized executive pay are failures of ownership.

I argue, therefore, that shareholders should bear the primary costs, but criminal charges may be appropriate for both executives and boards of directors. My reasoning is straightforward: ownership is responsible for ensuring that management is doing the right thing. If ownership lets management unwisely risk the entire value of the company they should pay the price (first).

Apparently three days before filing bankruptcy, Lehman's board approved $100 million in executive payouts. As long as it doesn't affect the US taxpayer I see no need to intervene in
this nonsense. On the other hand, if there's criminal culpability involved, as seems likely if not probable, I encourage prosecution.