He recently bloodied his publicity-craving snout when The House of Representatives recently passed the “Say on Pay” bill. Now, blustering Congressman Barney Frank is looking for fresh prey. He clamored for and proposed this bill (who else) and insisted that such legislation (which allows shareholders a non-binding vote on CEO compensation) is necessary to stop run-away executive compensation. Hwoever, its purpose is thinly veiled; it is to shame directors into lowering CEO pay when in fact it is really a violation of shareholder rights in that it usurps corporate control the purpose of which is to maximize shareholder wealth.
The idea per se is terribly flawed; the fact Barney Frank is involved is horrifying. Talk about letting the fox into the hen house. Heck, anyone truly concerned about shareholders and the business health of corporate America should be campaigning for the repeal of such regulations. Congressman Frank has supported outright caps on CEO pay and has the hubris to say that if “say on pay” does not sufficiently reduce CEO compensation relative to that of other employees, “then we will do something more.” Who is the “we?”
A Minority of “activist” shareholders, together with anti-business politicians like Ted Kennedy and Frank, shriek about “outrageous” CEO pay packages and continue to agitate seeking to use the power of government to force their views of corporate governance. But what really motivates these activists is an inexplicable anti-profit, anti-capitalist agenda. And who better to lead than the shrill anti-business Frank.
Yaron Brook asserts in a May 21 article entitled, “Should shareholders have a say on pay?–No,” the concept of “social responsibility” (the idea that executives and shareholders should sacrifice money-making for the sake of certain ‘sundry stakeholders’, is incompatible with the purpose of business and with the responsibility of corporate leaders to maximize shareholder wealth.
Continuing to ignore the workings of the free market, Barney Frank is now setting his ultra-liberal sights on private equity, but in this arena, he has already been exposed as a financial novice.
Political intervention has already forced many businesses to flee to the relative safety of private ownership, i.e., being owned and run by professionals so that they can continue to maximize their wealth, but now Frank is onto the scent. He had the gall to threaten legislative action if Congress finds that private-equity deals spawn a “gross imbalance” in pay between the workers in the affected companies and the executives and entrepreneurs who take those companies private. Introducing a hearing by his House Financial Services Committee on the effects of private equity on workers and corporations, Frank acknowledged that there was no question that the firms create value when they take public companies private. However, “when a small number of individuals benefit from a deal and workers are laid off,” he said, “that seems to me wrong….to the extent that we see gross imbalances, then we’re going to have to act.” Again, I wonder who the “we” is.
One committee member, Richard H. Baker, a Republican from Louisiana, suggested that a strict regulatory approach to private equity would hurt ordinary Americans by curbing opportunities for growth in their employer-provided pension plans, many of which invest heavily in the funds. “In our search to help working people, we should be concerned about how fat we make that regulatory book,” he said. He added, “We need to go real slow…Maybe we don’t need to go at all.”
Representative Spencer Bachus of Alabama, the Financial Services Committee’s top Republican, cautioned against regulating the industry with an “overly prescriptive” approach, which he said could drive private-equity firms offshore and compromise the competitiveness of U.S. capital markets.
Despite all the political grandstanding and feigned angst over the perils of the boom in private equity, the hearing, titled “Private Equity’s Effects on Workers and Firms,” demonstrated in the end just how little lawmakers understand the buyout business. Clearly, this is the domain of Kohlberg Kravis Roberts & Company, Bain Capital, the Carlyle Group, the Thomas H. Lee Company, etc and should stay there. Barney Frank and others of his ilk need to stay away.
As a recent New York Times article pointed out (“Sound and Fury Over Private Equity” by Andrew Ross Sorkin dated May 20, 2007), what the issue comes down to is not jobs or inequality, but taxes. In short, the real debate is whether private equity should pay more in taxes, at a rate approaching 35 percent rather than the current 15 percent. Squeezing the wallets of private equity firms may prove to be the most taxing issue the industry faces. However, if a tax hike occurs, expect buyout “…honchos to start heading to balmier, sandier climes…”
NJ Governor Jon Corzine, who has forgotten more about monetary matters than Frank can dream about provided the best perspective on industry realities when he recently spoke on “Today” on NBC: “Many of them will go offshore and avoid the U.S. taxation.”
In the end and as the aforementioned Times article stated, “Watching Barney Frank, the Massachusetts Democrat…try to rattle the private equity industry during a hearing last week in Washington was a bit like watching someone waving an unloaded gun — threatening, but ultimately harmless.”
The markets will take care of the business of business. ”The Sarbanes-Oxley Act of 2002″ was more than enough. Barney Frank and a Federal government that should place its focus elsewhere should mind their own business and remain as witty entertainers in the center ring of their own political circus.
“Frank is not content with badgering public companies with his iron fist and socialist measurements, i.e. telling Cox he is too soft on regulating them through the SEC, now he thinks the Federal government should have a say in regulating what a private company can pay its people. The hubris is incredible and the destructive implications to private enterprise are enormous. It is simply none of his business what a company pays people or what layoffs are done to insure the growth of an enterprise. The managers are the people that are risking their capital and they own its success (or failure).” From an unidentified blogger
Ted Sares, PhD., is a syndicated writer who writes columns, essays, articles and short stories for a number of different publications. He is also a well-known boxing writer and boxing historian.
Ted Sares, PhD., is a syndicated writer. He can be reached at tedsares@roadrunner.com
Find More Hen House Articles
Leave a Reply