What You're Saying
University of Minnesota professor Brett McDonnell's post on executive compensation drew some attention this week. Here are a couple interesting comments on the matter:
What else might we try? How about denying our tax dollars -- or tax breaks -- to any firm that pays its executives unconscionably more than its average employees receive?
We already deny government contracts to firms that discriminate, in their employment practices, by race or gender. We've decided, as a society, that our tax dollars should not subsidize racial or gender inequality. Why should we let our tax dollars subsidize economic inequality?
Rep. Janice Schakowsky (D-IL) this past April introduced legislation -- the Patriot Corporations of America Act -- that would give preference in the federal contract bidding process to firms that pay their top execs no more than 100 times what their lowest-paid workers receive.
In my corporations course in law school, we spent weeks learning about how the "business judgment rule" and duties of care and loyalty pretty much insulate corporate actors from liability except in the most extreme cases.
On the one hand, I agree that in most cases corporate executives shouldn't be subject to liability for, say, exercising business judgment on a deal that ends up going sour. Not every business deal is going to bring in mega-profits, and sometimes recessions or market conditions or trends get in the way of what might otherwise be a good deal.
But it's quite another thing when EVERY single executive decision from pay packages to John Thain's $13,000 commode and corporate jets can be justified in the name of the "business judgment rule." We don't want corporate actors to be constrained from acting and yet the logical extension of the rule is that it justifies lots of very bad behavior.
Lastly, although I appreciate the "pros" that come with incorporating in a state like Delaware, e.g. a state whose courts have expertise in handling corporate disputes, the predictability of outcomes, etc., I think it's high-time we start recognizing Delaware corporate law for what it's become: a big race to the bottom.
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