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The Democratic Platform and Say on Pay

By J. Robert Brown

The topic of corporate governance does not play a large role in the proposed democratic platform published last week.  Nonetheless, there was some discussion of regulatory reform, most of it bland and vague.  But at the end of the one operative paragraph was a specific mention of say on pay.  According to the draft platform:

• Reforming Financial Regulation and Corporate Governance.  We have failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices. We have let the special interests put their thumbs on the economic scales. We do not believe that government should stand in the way of innovation, or turn back the clock to an older era of regulation. But we do believe that government has a role to play in advancing our common prosperity: by providing stable macroeconomic and financial conditions for sustained growth; by demanding transparency; and by ensuring fair competition in the marketplace. We will reform and modernize our regulatory structures and will work to promote a shift in the cultures of our financial institutions and our regulatory agencies. We will ensure shareholders have an advisory vote on executive compensation, in order to spur increased transparency and public debate over pay packages.  (emphasis added)
  

In other words, the election of a democratic administration will result in a promise to implement say on pay, federal preemption of an area of governance historically left to the states.  Why?  Because the Delaware courts refuse to impose any meaningful standards when it comes to the review of executive compensation, relying entirely on procedural mechanisms that are largely unenforced (primarily reliance on "independent" director approval).  Had there been meaningful state law standards, the say on pay initiative would not be part of a major party's presidential platform. 

Full post as published by The Race to the Bottom on August 14, 2008 (boomark / email).