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The 2013 Nobel Prize in Economics winners were announced
earlier this week and the award was shared by three U.S. Economists for their
work on asset pricing.  Eugene
Fama of the University of Chicago, Lars
Peter Hansen of the University of Chicago and Robert Shiller of Yale University
share this year’s prize for their separate contributions in economics research.

The work of the
three economics is summarized very elegantly in the
summary publication produced by The Royal Swedish Academy of Sciences
titled “Trendspotting in asset markets”.  The combined economic contribution of the
three researchers is described below:

The behavior of asset prices is essential for many important
decisions, not only for professional inves­tors but also for most people in
their daily life. The choice on how to save – in the form of cash, bank deposits
or stocks, or perhaps a single-family house – depends on what one thinks of the
risks and returns associated with these different forms of saving. Asset prices
are also of fundamental impor­tance for the macroeconomy, as they provide
crucial information for key economic decisions regarding consumption and
investments in physical capital, such as buildings and machinery. While asset
prices often seem to

…

Hardcover book forthcoming. 
Here is a description from the Amazon product page:

Since the 1980s,
society’s wealthiest members have claimed an ever-expanding share of income and
property. It has been a true counterrevolution, says Pierre Rosanvallon–the
end of the age of growing equality launched by the American and French
revolutions. And just as significant as the social and economic factors driving
this contemporary inequality has been a loss of faith in the ideal of equality
itself. An ambitious transatlantic history of the struggles that, for two
centuries, put political and economic equality at their heart, The Society of
Equals calls for a new philosophy of social relations to reenergize egalitarian
politics. For eighteenth-century revolutionaries, equality meant understanding
human beings as fundamentally alike and then creating universal political and
economic rights. Rosanvallon sees the roots of today’s crisis in the period
1830-1900, when industrialized capitalism threatened to quash these
aspirations. By the early twentieth century, progressive forces had begun to
rectify some imbalances of the Gilded Age, and the modern welfare state
gradually emerged from Depression-era reforms. But new economic shocks in the
1970s began a slide toward inequality that has only gained momentum in the
decades since.

On October 16th, the US Chamber of Commerce’s
Center for Capital Markets Competitiveness will host a half-day event to
examine trends from the 2013 proxy season and look ahead to 2014.  The day
will start with a presentation from the Manhattan Institute about the 2013 season
and then I will be on a panel with Tony Horan, the Corporate Secretary of
JP Morgan Chase, Vineeta Anand from the Office of Investment of the AFL-CIO,
and Darla Stuckey of the Society of Corporate Secretaries and Governance
Professionals. Our panel will look  back at the 2013 proxy season and discuss hot
topics in corporate governance in general.  Later in the day, Harvey Pitt
and other panelists will talk about future trends and reform proposals, and
depending on the state of the government shutdown, we expect a
member of Congress to be the keynote speaker. The event will be webcast for
those who cannot make it to DC.  Click here
to register.

Dodd-Frank requires the SEC to issue rules barring national exchanges
from listing any company that has not implemented a clawback policy that does
not include recoupment of incentive-based compensation for current and former
executives for a three-year period.  Unlike the Sarbanes-Oxley clawback rule,  Dodd-Frank requires companies to recover compensation,
including options, based on materially inaccurate financial information,
regardless of misconduct or fault.

Although the SEC has not yet issued rules on this provision,
a number of companies have already disclosed their clawback policies, likely
because proxy advisory firms Glass Lewis and Institutional Shareholder Services
have taken clawback policies into consideration when making Say on Pay voting
recommendations. Equilar has reviewed the proxy statements for Fortune 100
companies filed in calendar year 2013 for compensation events for fiscal year
2012. The organization released a report
summarizing its findings, which are instructive. 

Of the 94 publicly-traded companies analyzed by Equilar, 89.4%
publicly disclosed their policies; 71.8% included provisions that contained
both financial restatement and ethical misconduct triggers; 29.1% included
non-compete violations as triggers and 27.2% had other forms of triggers.  68% of the policies applied to key executives
and employees including named executive officers, while only 14.6% applied to
all employees. 7.8%…

I gave a talk
today about sustainable development, where I talked about the challenges of
trying to balance resource development with the need to preserve the
environment and deal with the social issues that come from increased
activity. 

One thing
came to mind: People matter.  Whether you work for EQT or the EPA, you’re a
person who has a job to do, which can have beneficial outcomes.   When we
discuss sustainable development, we also need to recognize the need for sustainable
conversation. Development doesn’t happen without conversation, which can lead to
compromise, which can lead to progress.  

Governments
and corporations are both made up of people.  Isolating either governments
or corporations as inherently evil entities is missing the point.  We can
disagree about the goals of either, but we need to be more careful about who we
vilify.  Negotiations don’t happen against governments or corporations,
they happen with people in governments or in corporations.  And we need to
remember that.

Too bad I
didn’t have this information from today’s
Wall Street Journal to add to my arsenal of reasons of why I think the Dodd-Frank conflict minerals
SEC disclosure is a well-intentioned but bad law to address rape, forced labor,
plundering of villages, murder, and exploitation of children in the Democratic
Republic of Congo. I won’t reiterate the reasons I outlined in my two-part blog
post a couple of weeks ago.  According
to press reports, while acknowledging her responsibility to uphold the law, SEC Chair Mary Jo White mirrored some of the arguments about
discretion that business groups and our amicus brief raised on appeal to the DC
Circuit, and further explained, “seeking
to improve safety in mines for workers or to end horrible human rights
atrocities in the Democratic Republic of the Congo are compelling objectives,
which, as a citizen, I wholeheartedly share … [b]ut, as the Chair of the SEC, I
must question, as a policy matter, using the federal securities laws and the
SEC’s powers of mandatory disclosure to accomplish these goals.”  I couldn’t agree more. While I have no problems with appropriate and relevant disclosure, corporate responsibility, and due diligence related to human rights, Congress should…

Professor Bainbridge takes issue with my analogy between shareholder activists and Congress.   I am pretty sure he’s missing my point, in part because I have not disagreed with the points he makes.  My point (or at least intended one) is not that shareholder rights should equal a strict democracy.  My point is that shareholder activists, sometimes with less than a majoity, say 20%, try to improperly impose their will on the currently elected (and properly empowered) board.  Further, they are seeking additional powers to further their influence.    

I figure we all agree that if a majority of shareholders agree, they can, at the proper time, make the changes they want.  In contrast, shareholder activists often try to make those changes before they have the votes — votes they may never have to support their views.  I happen to see at least some of the current Republican House in that same vein.  That’s my intended point.  I am sure lots of people disagree with that, too, but I just want to make clear that I am criticizing what I see as the abuse of a powerful minority messing with a regime that was properly elected and exercising that…

Professor Haskell Murray is presenting on
Delaware’s new Public Benefit Corporation Act on October 5th at the
Southeastern Law Scholars Conference.  Delaware is the 19th state to
pass such legislation and given the influence that the state has on others in the area of
corporate law, it may prompt the many states that are considering it to pass their
own pending legislation.  Many question
the need for benefit corporations in general given the constituency statutes that are already in
place in many states and the debate about the shareholder wealth maximization norm. Others worry about unintended consequences (see
here for example).  

Haskell has
probably written more extensively on these entities than almost anyone else (see here).
Although his latest article is not yet on SSRN, the abstract is below.  I look forward to reading his article and to
seeing how many Delaware corporations jump on the benefit corporation
bandwagon.

“Systems should exist to serve
society.  Right now our capitalist system is not serving society; it’s
serving shareholders.  And we can’t run around expecting different
outcomes until we change the rules of the game.”   -Jay Coen Gilbert
(Co-founder, B-Lab)

“Delaware, the leading incorporation state…

So the government shutdown has me troubled.  I think it’s reasonable for the House not
like Obamacare and to do everything they can to repeal the law.  However, it strikes me as different to force a
government shutdown because that’s the only way they can get leverage to make a
change the voters, at least at the last election, did not agree with.  

As Sen. John McCain explained last week:

Many of those who are in opposition right now were not here
at the time and did not take part in that debate. The record is very clear of
one of the most hard fought, fair, in my view, debates that has taken place on
the floor of the Senate. That doesn’t mean that we give up our efforts to try to
replace and repair Obamacare, but it does mean that elections have
consequences. Those elections were clear in a significant majority that a
majority of the American people supported the president of the United States
and renewed his stewardship of this country.

The actions of the House right now remind me a lot of the
arguments put forth against shareholder activism.  That is, the complaints about rent-seeking actions…

Arguably related to the SEC’s recently proposed CEO pay ratio
rules, Alberto Salazar and John Raggiunti have posted “Why Does Executive Greed
Prevail in the United States and Canada but Not in Japan? The Pattern of Low
CEO Pay and High Worker Welfare in Japanese Corporations” on SSRN.  Here is the abstract:

According to a list of the 200 most highly-paid chief
executives at the largest U.S. public companies in 2013, Oracle’s Lawrence J.
Ellison remained the best paid CEO and earned $96.2 million as total annual
compensation last year. He has received $1.8 billion over the past 20 years.
The lowest paid on the same list is General Motors’ D. F. Akerson who earned
$11.1 million. The average national pay for a non-supervisory US worker was
$51,200 last year and a CEO made 354 times more than an average worker in 2012.
Hunter Harrison, Canadian Pacific Railway Ltd., was the best paid CEO in Canada
for 2012 and received $49.2-million as total annual compensation, significantly
higher than the 2011 best paid CEO, Magna’s F. Stronach who received $40.9
million. In 2011, the average annual salary was $45,488 and Canada’s top 50
CEOs earned 235 times

…