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| | | 05/10/07 - Denver, CO | Barney Frank, the liberal Democratic congressman from Massachusetts, needs to stay out of the CEO suite. Frank apparently hopes to follow in the self-righteous footsteps of Senator Paul Sarbanes and Representative Mike Oxley, authors of the infamous Sarbanes-Oxley Act, in a vote-grabbling crusade against corporate America. Hopefully, boardrooms everywhere will put up a fight to stop him.
Frank, a professional politician who has not held a real job since being elected to Congress in 1981, is sponsoring legislation to amend the Securities Exchange Act to allow shareholders to scrutinize, criticize and essentially set CEO compensation. In drafting HR 4291, Frank has launched a campaign to eliminate what he sees as wrongfully huge compensation packages for American CEOs. The trouble is, as usual with Congress, he's grandstanding for a law that would affect the 99 percent of CEOs who earn every dime of compensation in an effort to punish the one percent who don't.
HR 4291 is just another version of the many famous laws of unintended consequences sponsored in Congress every year. It should never pass. The marketplace is managing CEO compensation appropriately, and must be allowed to continue to do so. Boards of directors – and compensation committees especially – are setting and watching CEO compensation more closely now than ever before. At least one measure of that is the fact that the average tenure of an American CEO now is only 19 months. The short tenure shows that the focus on performance-based compensation for CEOs is sharp, and that boards have a low tolerance for lackluster results. The market rewards performance, and if the CEO doesn't perform, his neck is on the block.
That said, the majority of companies do well and the majority of CEOs do a great job. A lot of people make a lot of money for superior performance, and that's a hallmark of the free market system. When you have government tinkering too much with the free market system, you have socialism, and you see how well that works.
This is apples and oranges. One is business, the other is pure politics. How can a group of men and women have the audacity to be critical of American business, especially the leaders of American business, when they can't even balance the government's budget – and have shamefully let our nation slip trillions of dollars into debt? A lot of people truly believe that the only job elected representatives have is to get re-elected year after year and not to serve the American people. Government has a penchant for extending its hands into everything when it can't even take care of its own business.
Most people wish they had the option of investing in the U.S. government, but we don't. We get to pay taxes no matter how inefficient they are, and as a reward for their inefficiency, we get to pay more taxes in on top of our spiraling debt.
There are ample new laws, regulations, guidelines and restrictions being forced on corporate America by Sarbanes-Oxley, the SEC, Financial Standards Accounting Board and other government agencies on the local, state and national level. So many are struggling to keep up with the skyrocketing costs of compliance that we are witnessing a stampede of public companies going private. (Does Georgia Pacific sound familiar?)
Enter Barney Frank with just one more reason for growing companies to forget the IPO and begin courting the private equity guys – along with their public counterparts.
Valant is president and CEO of Valant & Company, which has offices in Denver and Atlanta. Valant & Company is a business performance improvement consultancy with more than 30 years of experience helping business and industry to grow profits. He can be reached at 303.589.3840 or by e-mail at lvalant@valantco.com. |
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