MoF Hosts Corporate Governance Meeting for of Federal Government Representatives on Corporate Boards

by Zawya, March 22, 2010.

 Abu Dhabi, 22 March 2010: Ministry of Finance today hosted the first in a series of meetings on corporate governance for Federal Government representatives nominated on the boards of UAE joint companies and other UAE authorities. The meeting was attended by HE Younis Haji Al Khoori, Director General of MoF, HE Khalid Al Bustani, Executive Director of International Financial Relations Sector, HE Musabah Al Suwaidi, Executive Director of Support Services Sector, Mr. Ali Hamdan Ahmed, Director of International Financial Organizations Department, and a number of MoF department managers.

The Ministry of Finance is committed to improve corporate governance standards and to revitalize the role played by the government in regional and international companies in which it participates. It also aims to strengthen international financial relations with Arab and other foreign countries in light of increasing investments to grow UAE’s future revenues.

In his opening address, HE Younis Haji Al Khoori, Director General of MoF said: “The importance of corporate governance has increased as it plays a vital role in improving economic, financial and investment performance globally.It is necessary to enforce and follow-up a governance code of conduct to guarantee the rights of shareholders and investors. Advances in corporate governance are designed for greater protection of companies’ assets and property, helps achieve sustainable economic progress and increases effectiveness of capital flows.”…(continue reading)

Paid to Fail

by Lucian Bebchuk, Alma Cohen, and Holger Spamann, for The Harvard Law School Forum at Harvard Law School, March 22, 2010.

In a report just filed with the United States court that is overseeing the bankruptcy of Lehman Brothers, a court-appointed examiner described how Lehman’s executives made deliberate decisions to pursue an aggressive investment strategy, take on greater risks, and substantially increase leverage. Were these decisions the result of hubris and errors in judgment or the product of flawed incentives?

After Bear Stearns and Lehman Brothers melted down, ushering in a worldwide crisis, media reports largely assumed that the wealth of these firms’ executives was wiped out, together with that of the firms they navigated into disaster. This “standard narrative” led commentators to downplay the role of flawed compensation arrangements and the importance of reforming the structures of executive pay.

In our study, “The Wages of Failure: Executive Compensation at Bear Stearns and Lehman Brothers 2000-2008,” we examine this standard narrative and find it to be incorrect. We piece together the cash flows derived by the firms’ top five executives using data from Securities and Exchange Commission filings. We find that, notwithstanding the 2008 collapse of the firms, the bottom lines of those executives for the period 2000-2008 were positive and substantial.

Most importantly, the firms’ top executives regularly unloaded shares and options, and thus were able to cash out a lot of their equity before the stock price of their firm plummeted. Indeed, the top five executives unloaded more shares during the years prior to their firms’ meltdown than they held when disaster came in 2008. Altogether, during 2000-2008, the top executive teams at Bear Stearns and Lehman cashed out about $1.1 billion and $850 million (in 2009 dollars), respectively…(continue reading)

Reforming deposit insurance

by Uddin Ifeanyi, for Next, March 22, 2010.

The global financial crisis, which set in around mid-2008, is arguably past its worst. We may debate the eventual outlines of the recovery, whether the trajectory will be v-shaped or u-shaped, but the shadow of the new regulatory environment is evident from this vantage.

Depository institutions should expect to hold much more capital against the loans they make going forward, than was the case before the crisis. Central banks just might adopt variations of the Volcker rule. The former chair of the US Federal Reserve and current Chairman of President Obama’s Economic Recovery Advisory Board, Paul Volcker has argued for restricting banks from trading in their own names in the investment and brokerage markets.

When Giovanni Vico (the recurring cycle of three ages) averred that history goes round in cycles he could not have had the Glass-Steagall Act in mind. For, although the Volcker rule lacks the reach of the 1933 law, which legislated a division between investment and commercial banking in the United States of America, it does do much to recover its spirit.

One other reform that it is fair to hope for is the requirement that the markets play a bigger role in the governance of  Bayero University, Kanobanks. For all its worth, this one bit of the new financial institutions architecture pre-dates the current crisis-driven effort at the system’s makeover. It showed up as a pillar in the Basle II system. And was much talked about in the wake of the Enron-related corporate governance crisis, when most commentators felt that institutional investors could have done more to hold the feet of the managers of the companies in which they had investments to the fire…(continue reading)