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August 17, 2015


This famous question was asked some 40 years ago of one of the Watergate conspirators at a Senate hearing after Nixon’s resignation by an old senator from North Carolina, Senator Sam Ervin, who had formerly been a county judge in North Carolina prior to his election to the Senate.  It was a very appropriate question to be asked of the witness who, like many yet today when testifying, wrap themselves in the flag and plead executive authority in their attempts to evade answering substantive questioning of congressional committees. (Parenthetically, an exception to this general putdown of witnesses before congressional committees must be made for today with Issa’s House committee, where questioning of witnesses is not substantive but a mere platform for Issa’s political showboating.)

I do not recall the witness’s answer to this personal interrogatory propounded by Senator Ervin, but I do know what it should have been considering that he and his fellow conspirators were caught red-handed in their attempt to violate the Constitution at the highest level in plotting and carrying out this third-rate Watergate burglary. He should have answered: “I am ashamed, sir. I am sorry to have participated in this attempt to violate the Constitution and am ready to take whatever punishment is meted out to me by the appropriate authority.” While I don’t recall what his answer was, I do recall that it was nothing like my proposed answer to Senator Ervin would have been had I been such a conspirator.

Now we have the concept and application of “shame” back in the news again these days, but in a different context. It has to do with CEOs and public disclosure of how many multiples of average worker pay in his firm he is paid. It is the result of a recent SEC vote to require the country’s some 4,000 public companies to disclose the salary difference between the CEO and the firm’s average worker with an effective date of 2017. I welcome such a requirement, but I think it doesn’t go far enough.

The rule is scheduled to take effect in 2017, but my guess is that lawsuits will further delay its starting date as Wall Street lawyers argue over-regulation etc. of their client banking and other public corporations. The rule as finally promulgated is part of the Dodd-Frank financial reform law passed in 2010, so it will have taken seven years (unless delayed further by expected litigation) for the rule’s implementation due to ferocious opposition over the past five years by armies of Wall Street lobbyists and lawyers. (Their “take no prisoners opposition” and over one billion dollars spent for lobbying against implementation of Dodd-Frank alone is enough to tell me that the rule is a good one for you and me.)

In Germany the ratio of executive compensation over average worker pay in such executives’ firms is set by law, and the last time I checked it was 8 to 1. Here I blogged recently that Pay Watch had found that CEO pay vs. average worker pay in the CEO’s firms was nearing 400 to 1 (the actual number at the time was 373 to 1, but climbing). The Economic Policy Institute reports that the typical CEO now makes more than 300 times as much as the average rank-and-file worker in his/her firm, noting further that in 1965 it was just 20 times as much.

Such executive compensation paid today (typically in the millions, much of it not in salary but in stock options and other forms of deferred compensation) has to be paid for by the rest of us either as shareholders (reduced profits available for dividends) or as taxpayers or consumers of such firms’ goods and services via higher taxes and prices; there is no free lunch. The rest of us are helping subsidize such outlandish payments to executives even though non-shareholders, albeit indirectly. Here’s how. Corporations take executive compensation as a deduction against income, meaning they pay less taxes in as revenue to government to fund our budget, and you and I have to make up for such shortfall either via taxes or liability to pay for the increased long term deficit thus created in order to approach balance (a current impossibility with austerity-crazed and tax cutting budget-makers in charge).

So when and if the disclosure rule finally forces public corporations to disclose the amount of compensation they are paying their CEOs (other than in obscure government reports nobody reads) and the average wages their firms pay their workers, will red-faced boards of directors be forced to act? Will those of us who incessantly complain about wage inequality be in the streets, pitchforks in hand? Will we demand that Dodd-Frank be amended (if such is necessary) to include all executives and managerial employees of all publicly-held corporations? Why not? Why the secrecy when such compensation is in one way or another coming out of our largesse? Aren’t we entitled to know who is picking our pockets?

You can expect to hear corporate apologists use the same old arguments their lobbyists and lawyers have been using over the past 5 years to delay or prevent implementation of the disclosure rule, chief of which will be that such executives “deserve” their megamillions “because they deliver impressive returns.” Robert Reich in the labels this argument as “Baloney,” noting that the stock market has surged so much over the past three decades that a CEO could have “played online solitaire” all day long and still watched the company’s stock price soar.

I agree. Given such an environment of under-regulation, tax cuts, income redefinition, skimming off the marginal productivity of their workers, wage inequality, multinational trade games, banks too big to fail (except when they do and we bail them out) et al., Ronald McDonald in full clown regalia could CEO a publicly held corporation and “deliver impressive returns.”

The truth is that when an economy is successfully rigged for gain by those who stand to gain, as during the past three decades, and despite all the pretense and pomp and propaganda associated with the choice of a CEO ginned up by those who made the choice, it is just another job slot on the managerial chart to be filled in by the Human Resources Department. The mark and mettle of a good CEO can be measured more accurately in a down-market situation than one rigged for success by what economists call “externalities,” which has been the situation for the past three decades. “Impressive returns” indeed!

So will Wall Street finally throw in the towel and acquiesce in following the SEC disclosure rule to be implemented in 2017? Don’t bet the ranch on it. They have lots of money and little “shame” shown to date for how they conduct their businesses and have already held up this part of the Dodd-Frank law for 5 years and have 2 more years in which to load their guns for further delay. So expect further delay, but keep the pitchforks handy – just in case “shame” works in our profit-mad marketplace.   GERALD     E


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