"Who killed Katie Couric?" And other tales from the world of executive compensation reform

Fordham Law Review

Volumn 76, Issue 6, 2008, Pages 2907-2941

  Rosen, Kenneth M ^a  

^a UNIVERSITY OF ALABAMA SCHOOL OF LAW   (United States)

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EID: 46249098850     PISSN: 0015704X     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (185)

1. When former Tyco International chief executive officer (CEO) Dennis Kozlowski stood trial for allegedly taking millions of dollars for "unauthorized personal expenses," prosecutors showed video of his apartment that featured a $6000 shower curtain and a $15,000 umbrella stand dog sculpture. See Kevin McCoy, Jury Sees Kozlowski's Posh Digs via Video, USA Today, Nov. 25, 2003, http://www.usatoday.com/ money/industries/manufacturing/2003-11-25-tyco_x.htm.
2. One newspaper proclaimed that median chief executive officer compensation amounted to $14 million in 2004. See H.R. Rep. No. 110-88, at 3 (2007) (citing Gary Strauss & Barbara Hansen, Special Report: CEO Pay 'Business as Usual, ' USA Today, Mar. 30, 2005, at 1B);
3. see also Dan Slater, The Activist Professor, Deal, June 4, 2007, at 40 (describing CEO compensation at Home Depot and an exit package for a CEO purportedly worth $210 million). In addition to basic forms of compensation, more exotic forms of compensation, such as stock options, garner additional attention.
4. See Mark Hulbert, Why Backdated Options Might Be Contagious, N.Y. Times, Jan. 21, 2007, § 3, at 5 (discussing the problem of "retroactively granting options to executives and directors on dates when a company's stock price was lower");
5. see also M.P. Narayanan et al., The Economic Impact of Backdating of Executive Stock Options, 105 Mich. L. Rev. 1597, 1601-05 (2007) (providing an overview of backdating and forward-dating issue).
6. See Andrea Coombes, Wage Gap: Workers Say Execs Paid Too Much; Report Being Happier with Performance Pay, MarketWatch, June 20, 2007, http://www.marketwatch.com/news/story/worke-say-execs-pay-too/story.aspx?guid= %7b33B1BB3D-F9CB-4838-81B8-C01FB5F361B7%7d&print=true&dist=printTop.
7. See Krysten Crawford, Spitzer Seeks $100M from Grasso, CNNMoney.com, May 24, 2004, http://money.cnn.com/2004/05/24/markets/ spitzer_grasso.
8. See infra Part I.
9. See infra Part II.
10. See Kenneth M. Rosen, Mickey, Can You Spare a Dime? DisneyWar, Executive Compensation, Corporate Governance, and Business Law Pedagogy, 105 Mich. L. Rev. 1151 (2007).
11. Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (2002) (codified in scattered sections of 11, 15, 18, 28, and 29 U.S.C).
12. See, e.g., Larry E. Ribstein, Sarbox: The Road to Nirvana, 2004 Mich. St. L. Rev. 279;
13. Roberta Romano, The Sarbanes-Oxley Act and the Making of Quack Corporate Governance, 114 Yale L.J. 1521 (2005). Of course, some others take a more positive view of the Act.
14. See Robert A. Prentice & David B. Spence, Sarbanes-Oxley as Quack Corporate Governance: How Wise Is the Received Wisdom?, 95 Geo. L.J. 1843 (2007) (responding to academic claims that empirical research finds Sarbanes-Oxley problematic and arguing for optimism). I certainly would not claim that the Act is devoid of any positive ideas. Rather, my critique is that the reforms undertaken were not necessarily the most optimal. I make this point with Professor Jill Fisch in an article judging section 307 of the Act as a second-best solution for corporate governance problems.
15. See Jill E. Fisch & Kenneth M. Rosen, Is There a Role for Lawyers in Preventing Future Enrons?, 48 Vill. L. Rev. 1097 (2003).
16. The Securities Exchange Act of 1934, as amended through the years, provides much of this authority. The U.S. Securities and Exchange Commission (Commission or SEC) possesses authority to prosecute certain securities law violations and to sit in judgment of whether some violations have occurred. See SEC, The Investor's Advocate: How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation, http://www.sec.gov/about/whatwedo.shtml (last visited Mar. 11, 2008). The SEC also enjoys administrative rulemaking authority in a variety of areas related to the regulation of securities. See, e.g., 15 U.S.C. § 78k-1 (2000) (providing rulemaking authority related to the national market system).
17. Some SEC rulemaking occurred prior to the Sarbanes-Oxley Act's passage. See, e.g., Requirements for Arthur Andersen LLP Auditing Clients, Securities Act Release No. 8070, Exchange Act Release No. 45,590, 67 Fed. Reg. 13,517 (Mar. 22, 2002) (attempting to address issues related to the indictment of Arthur Andersen LLP). Other regulatory efforts followed enactment of the Sarbanes-Oxley Act, sometimes pursuant to its dictates. See, e.g., Implementation of Standards of Professional Conduct for Attorneys, Securities Act Release No. 8185, Exchange Act Release No. 47,276, Investment Company Release No. 25,919, 68 Fed. Reg. 6296 (Feb. 6, 2003) (implementing section 307 of the Sarbanes-Oxley Act).
18. 15 U.S.C. § 77a (2000).
19. See SEC, Invest in Your Legal Career, http://www.sec.gov/jobs/ lawyers.htm (last visited Mar. 11, 2008) (internal quotation marks omitted).
20. SEC, The Laws That Govern the Securities Industry, http://www.sec.gov/ about/laws.shtml (last visited Jan. 29, 2008); see also Securities Exchange Act of 1934, 15 U.S.C. § 78a (2000).
21. Executive Compensation and Related Party Disclosure, Securities Act Release No. 8655, Exchange Act Release No. 53,185, 71 Fed. Reg. 6542 (Feb. 8, 2006).
22. Id. at 6543.
23. Id. Because the SEC recently had revised its rule requiring interim reports about businesses to be filed on Form 8-K, see 17 C.F.R. § 240.13a-11 (2007), it also "propose[d] to reorganize and more appropriately focus . . . requirements on the type of compensation information that should be disclosed on a real-time basis," see Executive Compensation and Related Party Disclosure, 71 Fed. Reg. at 6543.
24. See infra notes 26-43 and accompanying text.
25. See Marcy Gordon, Investors Get Clear Picture of Big Bucks, St. Louis Post-Dispatch, Dec. 16, 2006, at A37;
26. Jerry Stroud, Companies Give Sneak Preview of New SEC Disclosure Rules, St. Louis Post-Dispatch, Sept. 10, 2006, at E4. At the time of Katie Couric's move to the CBS television network to become the network's evening news anchor, it was speculated that significant compensation would greet her upon her arrival at CBS.
27. See Lola Ogunnaike, No Surprise but Some Sadness for 'Today' Fans on the Plaza, N.Y. Times, Apr. 6, 2006, at C4 ("Although the specifics of Ms. Couric's CBS salary are unknown, all of those interviewed agreed that the prospect of a big payday was behind her decision to leave NBC").
28. See Standard Instructions for Filing Forms Under Securities Act of 1933, Securities Exchange Act of 1934 and Energy Policy and Conservation Act of 1975 - Regulation S-K, 17 C.F.R. pt. 229 (2007). See generally Thomas Lee Hazen, The Law of Securities Regulation (5th ed. 2005) (describing the background and contents of Regulation S-K).
29. See Executive Compensation and Related Party Disclosure, 71 Fed. Reg. at 6615.
30. The SEC's release identified the relevant officers. At the time of the release, the SEC required disclosure by a covered company's CEO and the four other most highly compensated executive officers as well as up to two more individuals who would otherwise be excluded because they left their executive officer posts before the end of the fiscal year. See id. at 6563 & n.162. The SEC's release also proposed modifying that active executive officer list to include the principal executive officer, the principal financial officer, and the three other most highly compensated executive officers. See id.
31. See id. at 6558.
32. Id.
33. See generally Executive Compensation and Related Party Disclosure, 71 Fed. Reg. 6542.
34. See SEC, Comments on Proposed Rule: Executive Compensation and Related Party Disclosure, http://www.sec.gov/rules/proposed/s70306.shtml (last visited Mar. 27, 2008); Press Release, SEC, SEC Votes to Adopt Changes to Disclosure Requirements Concerning Executive Compensation and Related Matters (July 26, 2006), http://www.sec.gov/news/press/2006/2006-123.htm (citing Chairman Christopher Cox's comment that "[w]ith more than 20,000 comments, and counting, it is now official that no issue in the 72 years of the Commission's history has generated such interest . . ."); David M. Katz, SEC Drops Celebrity Pay Proposal, CFO.com, July 26, 2006, http://www.cfo.com/article.cfm/7218890?f=search.
35. See Executive Compensation Disclosure, Securities Act Release No. 8735, Exchange Act Release No. 54380, 71 Fed. Reg. 53,267 (Sept. 8, 2006). These commenters, often individuals, seemed generally interested in disclosure of the inner workings of companies, especially public companies. See, e.g., Letter from Michael Bruch to SEC (May 12, 2006), available at http://www.sec.gov/rules/proposed/s70306/mbruch051206.htm; Letter from James B. Hubbard to SEC (May 12, 2006), available at http://www.sec.gov/rules/ proposed/s70306/jbhubbard5244.htm; Letter from Preston W. Huey to SEC, President, Strategic Comme'ns, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/pwhuey2580.htm. Some commenters also appeared attracted to the proposal because, as noted below, it was opposed by some in the media and entertainment industry. See, e.g., Letter from Preston W. Huey to SEC, supra; Letter from Robert Kammer to SEC (May 12, 2006), available at http://www.sec.gov/rules/proposed/s70306/rkammer8788. htm. Accordingly, sympathizers of the proposal might view the proposal as fair to investors rather than invading the targeted employees' privacy. See, e.g., Letter from Jack Ciesielski, President, R.G. Assocs., Inc., to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/ jtciesielski3899.pdf.
36. See, e.g., Letter from Martha L. Carter, Senior Vice President and Managing Dir., Corporate Governance Institutional S'holder Servs., to SEC (Mar. 28, 2006), available at http://www.sec.gov/rules/proposed/s70306/ mcarter9965.pdf; Letter from Cleary Gottlieb Steen & Hamilton, LLP, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/ cleary041006.pdf; Letter from Jack Ehncs, CEO, Cal. State Teachers' Ret. Sys., to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/ s70306/calstrs041006.pdf; Letter from John Faulkner. Chairman, Capital Mkts. Comm., Sec. Indus. Assoc, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/sia041006.pdf; Letter from Sharon D. Fiehler, Executive Vice President, Human Res. & Admin., Peabody Energy, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/ s70306/sdfiehler4530.pdf; Letter from Roberta D. Fox & Michael Sorensen, Hewitt Assocs. LLC, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/hewitt041006.pdf; Letter from Henry H. Hopkins, Chief Legal Counsel, & Darrell N. Braman, Assoc. Legal Counsel, T. Rowe Price Assocs., Inc., to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/s70306-374.pdf; Letter from Dixie Johnson, Chair, Comm. on Fed. Regulation of Sec., Am. Bar Ass'n, to SEC (May 15, 2006), available at http://www.sec.gov/rules/proposed/s70306/ djohnson051506.pdf; Letter from Jeffrey Katzenberg, CEO, DreamWorks Animation SKG, Inc., to SEC (Apr. 6, 2006), available at http://www.sec.gov/rules/ proposed/s70306/s70306-145.pdf; Letter from Michael E. Keane, Vice President and Chief Fin. Officer, Computer Scis. Corp., to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/mekeane041006.pdf; Letter from John P. Kelsh, Sidley Austin LLP, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/jpkelsh6991.pdf; Letter from Cary Klafter, Vice President, Legal & Gov't Affairs, Dir., Corporate Affairs & Corporate Sec'y, Intel Corp., to SEC (Apr. 6, 2006), available at http://www.sec.gov/rules/proposed/s70306/ciklafter6947.pdf; Letter from Elizabeth Krentzman, Gen. Counsel, Inv. Co. Inst., to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed7s70306/ici041006.pdf; Letter from Jeffrey C. McGuiness, President, HR Policy Ass'n, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/ jcmcguiness041006.pdf; Letter from Michael Pollack, Principal, Retirement et al., Towers Petrin, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/towersperrin041006.pdf; Letter from Scott Renwick, Senior Vice President and Gen. Counsel, Unitrin, Inc., to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/ srenwick041006.pdf; Letter from Laraine S. Rothenberg, Fried, Frank, Harris, Shriver & Jacobson, LLP, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/lsrothenberg3444.pdf; Letter from Top Five Data Servs., Inc., to SEC (Apr. 7, 2006), available at http://www.sec.gov/rules/proposed/s70306/topfive040706.pdf; Letter from Richard M. Whiting, Executive Dir. and Gen. Counsel, Fin. Servs. Roundtable, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/ rmwhiting041006.pdf. In issuing a call for additional comments on the rule, discussed below, the Commission itself recognized many of these comments and the arguments proffered by the commenters. See generally Executive Compensation Disclosure, 71 Fed. Reg. 53,267.
37. See Letter from Jeffrey Katzenberg to SEC, supra note 28.
38. See Letter from Joseph A. Grundfest, William A. Franke Professor of L. & Bus. and Codirector of the Rock Ctr. on Corporate Governance, Stanford L. Sch., to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/jagrundfest3135.pdf; Letter from Elizabeth Krentzman to SEC, supra note 28; Letter from James B. Lootens, Corporate Sec'y, Eli Lilly & Co., to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/jblootens041006.pdf; Letter from Richard M. Whiting to SEC, supra note 28.
39. See Letter from Joseph A. Grundfest to SEC, supra note 30.
40. See, e.g., Letter from David Chavern, Vice President and Chief of Staff, U.S. Chamber of Commerce, to SEC (Apr. 7, 2006), available at http://www.sec.gov/rules/proposed/s70306/dchavern7512.pdf; Letter from Dixie Johnson to SEC, supra note 28; Letter from Linda E. Rappaport & George Spera, Shearman & Sterling LLP, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/shearmansterling041006.pdf.
41. See, e.g., Letter from Cravath, Swaine & Moore LLP to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/ ewhilfers2953.pdf; Letter from Diane Doubleday, Mercer Human Res. Consulting, Inc., to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/ proposed/s70306/mercer041006.pdf; Letter from Sharon D. Fiehler to SEC, supra note 28; Letter from Joseph A. Grundfest to SEC, supra note 30; Letter from Jeffrey Katzenberg to SEC, supra note 28; Letter from Dennis Ling, Chair, Comm. on Corporate Fin., Fin. Executives Int'l, to SEC (Apr. 21, 2006), available at http://www.sec.gov/rules/proposed/s70306/ dling5873.pdf; Letter from Jeffrey C McGuiness to SEC, supra note 28; Letter from Pearl Meyer & Partners to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/jrich7010.pdf; Letter from WorldatWork to SEC (Apr. 10, 2006), available at http://www.sec.gov/ rules/proposed/s70306/rmjohnson5604.pdf.
42. See, e.g., Letter from Diane Doubleday to SEC, supra note 33; Letter from Sharon D. Fiehler to SEC, supra note 28; Letter from Joseph A. Grundfest to SEC, supra note 30; Letter from Dixie Johnson to SEC, supra note 28; Letter from Jeffrey Katzenberg to SEC, supra note 28; Letter from James B. Lootens to SEC, supra note 30;
43. See Letter from David Chavern to SEC, supra note 32; Letter from Cleary Gottlieb Steen & Hamilton, LLP, to SEC, supra note 28; Letter from Sharon D. Fiehler to SEC, supra note 28; Letter from Joseph A. Grundfest to SEC, supra note 30; Letter from Henry H. Hopkins to SEC, supra note 28; Letter from James B. Lootens to SEC, supra note 30; Letter from Jeffrey C. McGuiness to SEC, supra note 28; Letter from Linda E. Rappaport & George Spera to SEC, supra note 32; Letter from Scott Renwick to SEC, supra note 28; Letter from Daniel J. Winnike, Fenwick & West LLP, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/djwinnike041006.pdf.
44. See, e.g., Letter from Joseph A. Grundfest to SEC, supra note 30; Letter from Steve Odland, Chairman, Corporate Governance Task Force, Bus. Roundtable, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/sodland041006.pdf; Letter from Pearl Meyer & Partners to SEC, supra note 33; Letter from WorldatWork to SEC, supra note 33.
45. See, e.g., Letter from John Faulkner to SEC, supra note 28; Letter from Henry H. Hopkins to SEC, supra note 28; Letter from Linda E. Rappaport & George Spera to SEC, supra note 32; Letter from Sullivan & Cromwell LLP to SEC (Apr. 21, 2006), available at http://www.sec.gov/rules/proposed/s70306/s70306-575.pdf; Letter from Daniel J. Winnike to SEC, supra note 35.
46. See, e.g., Letter from John Faulkner to SEC, supra note 28; Letter from Steve Odland to SEC, supra note 36.
47. See, e.g., Letter from John Faulkner to SEC, supra note 28; Letter from Joseph A. Grundfest to SEC, supra note 30; Letter from Linda E. Rappaport & George Spera to SEC, supra note 32.
48. See, e.g., Letter from Chadbourne & Parke LLP to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/ epsmith2795.pdf; Letter from Cleary Gottlieb Steen & Hamilton, LLP, to SEC, supra note 28; Letter from Cravath, Swaine & Moore LLP to SEC, supra note 33; Letter from Diane Doubleday to SEC, supra note 33; Letter from Foley & Lardner LLP to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/falardnerllp1183.pdf; Letter from Edward A. Hauder, Principal, Technical Solutions & Innovation Team Leader, Compensation Line of Bus., Buck Consultants, to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/eahauder041006.pdf; Letter from Henry H. Hopkins to SEC, stipra note 28; Letter from Christopher D. Ivey, Stradling Yocca Carlson & Rauth, to SEC (Mar. 31, 2006), available at http://www.sec.gov/rules/proposed/s70306/cdivey033106.pdf; Letter from Dixie Johnson to SEC, supra note 28; Letter from Michael E. Keane to SEC, supra note 28; Letter from Dennis Ling to SEC, supra note 33; Letter from Nancy Lucke Ludgus, Attorney at Law, to SEC (Apr. 1, 2006), available at http://www.sec.gov/rules/proposed/s70306/s70306-90.pdf; Letter from Jeffrey C McGuiness to SEC, supra note 28; Letter from Pearl Meyer & Partners to SEC, supra note 33; Letter from Linda E. Rappaport & George Spera to SEC, supra note 32; Letter from Scott Renwick to SEC, supra note 28; Letter from Laraine S. Rothenberg to SEC, supra note 28; Letter from Sullivan & Cromwell LLP to SEC, supra note 37; Letter from Top Five Data Servs., Inc., to SEC, supra note 28.
49. See Gordon, supra note 19 ("Dubbed the 'Katie Couric Clause' by critics, [the SEC proposal] brought a flurry of opposition during the comment period from Hollywood and big media companies."); Matthew Karnitschnig et al., Studios Are Furious That SEC Is Curious About Hollywood Pay, Wall St. J., Apr. 10, 2006, at B1;
50. Robert Schroeder, SEC Tightens Rules on Executive Pay, Seattle Times, July 27, 2006, at C1. Special concerns also came from the financial services industry. See, e.g., Letter from Henry H. Hopkins to SEC, supra note 28 (expressing fear of a disproportionate negative effect of proposed nonexecutive compensation disclosure on financial services firms).
51. See Letter from Linda E. Rappaport & George Spera to SEC, supra note 32 (doubting "that guidance and rules that have evolved in the context of executive compensation will be adequate to enable entertainment companies to calculate a total compensation amount for their most valuable 'talent' employees in a consistent and meaningful way").
52. See, e.g., Letter from Joseph A. Grundfest to SEC, supra note 30.
53. Executive Compensation and Related Person Disclosure, Securities Act Release No. 8732A, Exchange Act Release No. 54302A, 71 Fed. Reg. 53,158 (Sept. 8, 2006).
54. See generally id.; James Hamilton, Executive Compensation and Related-Party Disclosure (CCH) (2006) (describing rule changes).
55. Executive Compensation Disclosure, Securities Act Release No. 8735, Exchange Act Release No. 54380, 71 Fed. Reg. 53,267 (Sept. 8, 2006).
56. See id.
57. See supra Part I.A.
58. See Executive Compensation Disclosure, 71 Fed. Reg. at 53,268 (emphasis added).
59. Id.
60. See id.
61. See id. at 53,268-69.
62. See id. at 53,268. Such entities could include significant company subsidiaries and the company's principal business units, divisions, and functions. See id.
63. See id.
64. See id. at 53,268-69.
65. See id. at 53,269.
66. See id.
67. The following discussion should not suggest that the contents of the SEC's rules are perfect. Some already suggest that additional action might be necessary to address executive pay. See, e.g., Jennifer S. Martin, The House of Mouse and Beyond: Assessing the SEC's Efforts to Regulate Executive Compensation, 32 Del. J. Corp. L. 481, 512-28 (2007) (suggesting that current SEC rules alone are not enough to eliminate excessive executive compensation). Others call for moving the dialogue on executive compensation reform beyond pure securities law issues.
68. See, e.g., Sandeep Gopalan, Shame Sanctions and Excessive CEO Pay, 32 Del. J. Corp. L. 757, 758-69 (2007) (calling for more focus on norms about executive compensation and shaming in addressing executive pay);
69. Jerry W. Markham, Regulating Excessive Executive Compensation - Why Bother?, 2 J. Bus. & Tech. L. 277, 348 (2007) (finding that regulatory reforms might increase compensation and advocating allowing the market to deal with compensation issues);
70. Gregg D. Polsky, Controlling Executive Compensation Through the Tax Code, 64 Wash. & Lee L. Rev. 877, 892-926 (2007) (evaluating the possible impact of tax legislation on executive compensation). Moreover, even the basic question of whether executive pay is too high is open to debate.
71. See Robert B. Reich, CEOs Deserve Their Pay, Wall St. J., Sept. 14, 2007, at A13 (describing the possible economic case for high compensation and investor support for that pay). However, this Article focuses on how some government actors' processes might be more likely than those of others to craft better, if not perfect, reforms. Indeed, as suggested below, the SEC's rules are a work in progress.
72. In contrast, the SEC was forced by Congress in some of its other scandal-driven rulemakings to act by particular deadlines. See, e.g., Standards Relating to Listed Company Audit Committees, Securities Act Release No. 8173, Exchange Act Release No. 47,137, 68 Fed. Reg. 2637 (Jan. 17, 2003) (proposing a new rule that needed to become effective by April 26, 2003, pursuant to section 301 of the Sarbanes-Oxley Act). Of course, as discussed further below, the SEC was aware that some in Congress wished to engage in their own versions of executive compensation reform, which may have influenced the expediency of the Commission's own efforts. See Letter from Barney Frank, Ranking Member, U.S. House of Representatives Comm. on Fin. Servs., to SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/ bfrank041006.pdf.
73. Moreover, executive compensation reform was hardly the only item on the Commission's 2006 agenda, as it followed the busy years of post-Sarbanes-Oxley rulemakings. See generally SEC, SEC Proposed Rules Archive: 2006, http://www.sec.gov/rules/proposed/proposedarchive/proposed2006.shtml (last visited Mar. 11, 2008) (listing 2006 rule proposals); SEC, Final Rules Archive: 2006, http://www.sec.gov/rules/final/finalarchive/finalarchive2006.shtml (last visited Mar. 11, 2008) (listing 2006 rule adoptions).
74. See Executive Compensation and Related Person Disclosure, Securities Act Release No. 8732A, Exchange Act Release No. 54302A, 71 Fed. Reg. 53,158, 53,158 (Sept. 8, 2006).
75. See Executive Compensation Disclosure, Securities Act Release No. 8735, Exchange Act Release No. 54380, 71 Fed. Reg. 53,267, 53,267 (Sept. 8, 2006) ("[W]e adopted the rules and amendments substantially as proposed, with certain modifications to address a number of points that commenters raised.").
76. See Hamilton, supra note 45, at 5.
77. See supra note 41 and accompanying text.
78. See generally 1 Charles K. Rowley, Public Choice Theory (1993).
79. See SEC, Comments on Proposed Rule: Executive Compensation and Related Party Disclosure, http://www.sec.gov/rules/proposed/s70306.shtml (last visited Mar. 27, 2008) (listing individuals as well as entities commenting on the rules).
80. See Executive Compensation Disclosure, 71 Fed. Reg. 53,267.
81. See Executive Compensation Disclosure, Securities Act Release No. 8765, Exchange Act Release No. 55009, 71 Fed. Reg. 78,338 (Dec. 29, 2006).
82. See CII Objects to Hasty Revision of Rules on Executive Comp Disclosure, 39 Sec. Reg. & L. Rep. (BNA) 173 (Feb. 5, 2007);
83. Siobhan Hughes, SEC Reversal Irks a Committee Boss, Wall St. J., Dec. 28, 2006, at A2.
84. See Jeremy Grant, SEC's Red-Letter Day for Top Pay Miscreants, Fin. Times, Sept. 4, 2007, at 20. SEC review of actual filings with executive compensation disclosures permits a more detailed dialogue on ways to improve those disclosures.
85. See, e.g., Richard Hill, Performance Targets Drew Most Comment in SEC Review of Statements, Attorney Says, 39 Sec. Reg. & L. Rep. (BNA) 1826 (Dec. 3, 2007) (quoting an SEC staff member regarding the use of comments to issuers by staff "to 'test our understanding of what we think the disclosure is communicating'");
86. Mary Hughes, SEC Staff Finds Room for Improvement in Its Initial Review of Compensation Disclosures, 39 Sec. Reg. & L. Rep. (BNA) 1578 (Oct. 15, 2007) (noting that the Division of Corporation Finance revealed the possibility for improved disclosures by better organizing technical materials and by focusing the Compensation Discussion and Analysis). After the Commission critiqued company disclosures of top executives' pay during the summer and fall of 2007, the SEC followed up with additional letters to many of the targeted companies.
87. See Kara Scanneil & Joann S. Lublin, SEC Unhappy with Answer on Executive Pay, Wall St. J., Jan. 29, 2008, at B1.
88. See Press Release, SEC, Chairman Cox Unveils New Internet Tool With Instant Comparisons of Executive Pay (Dec. 21, 2007), http://www.sec.gov/ news/press/2007/2007-268.htm (noting the launch of an "online tool that enables investors to easily and instantly compare what 500 of the largest American companies are paying their top executives").
89. Mike Dorning, Democrats Savor Senate Win, Chi. Trib., Nov. 10, 2006, at 1.
90. See House Committee on Financial Services, Congressman Barney Frank, Chairman, http://financialservices.house.gov/ (last visited Mar. 11, 2008).
91. See Shareholder Vote on Executive Compensation Act, H.R. 1257, 110th Cong, (as introduced Mar. 1, 2007).
92. See Shareholder Vote on Executive Compensation Act, S. 1181, 110th Cong. (2007).
93. See supra notes 74-75. The version of the bill passed by the House amended section 14 of the Securities Exchange Act of 1934 to add a new subsection, "(i) Annual Shareholder Approval of Executive Compensation," which provides, (1) Annual vote. - Any proxy or consent or authorization for an annual meeting of the shareholders (or a special meeting in lieu of the annual meeting) occurring on or after January 1, 2009, shall provide for a separate shareholder vote to approve the compensation of executives as disclosed pursuant to the Commission's compensation disclosure rules (which disclosure shall include the compensation discussion and analysis, the compensation tables, and any related material). The shareholder vote shall not be binding on the corporation or the board of directors and shall not be construed as overruling a decision by such board, nor to create or imply any additional fiduciary duty by such board, nor shall such vote be construed to restrict or limit the ability of shareholders to make proposals for inclusion in such proxy materials related to executive compensation. See Shareholder Vote on Executive Compensation Act, H.R. 1257, 110th Cong, (as passed by House, Apr. 20, 2007) (internal quotation mark omitted).
94. A golden parachute denotes a package of special compensation awarded to executives upon the occurrence of events, such as the takeover of a company. See Franklin A. Gevurtz, Disney in a Comparative Light, 55 Am. J. Comp. L. 453, 464 n.22 (2007).
95. See supra notes 74-75. Under the bill passed by the House, subsection 14(i) added to the Securities Exchange Act of 1934 also provides, (2) Shareholder approval of golden parachute compensation.-(A) Disclosure. - In any proxy solicitation material for an annual meeting of the shareholders (or a special meeting in lieu of the annual meeting) occurring on or after January 1, 2009, that concerns an acquisition, merger, consolidation, or proposed sale or other disposition of substantially all the assets of an issuer, the person making such solicitation shall disclose in the proxy solicitation material, in a clear and simple form in accordance with regulations of the Commission, any agreements or understandings that such person has with any principal executive officers of such issuer (or of the acquiring issuer, if such issuer is not the acquiring issuer) concerning any type of compensation (whether present, deferred, or contingent) that are based on or otherwise relate to the acquisition, merger, consolidation, sale, or other disposition, and that have not been subject to a shareholder vote under paragraph (1). (B) Shareholder approval. - The proxy solicitation material containing the disclosure required by subparagraph (A) shall provide for a separate shareholder vote to approve such agreements or understandings. A vote by the shareholders shall not be binding on the corporation or the board of directors and shall not be construed as overruling a decision by such board, nor to create or imply any additional fiduciary duty by such board, nor shall such vote be construed to restrict or limit the ability of shareholders to make proposals for inclusion in such proxy materials related to executive compensation. Shareholder Vote on Executive Compensation Act, H.R. 1257, 110th Cong. § 2 (as passed by House, Apr. 20, 2007) (internal quotation marks omitted).
96. See supra notes 74-75.
97. See H.R. Rep. No. 110-88, at 5 (2007).
98. See id.
99. See Library of Congress, H.R. 1257, http://thomas.loc.gov/cgi-bin/ bdquery/z?d110:HR01257:@@@X (last visited Mar. 11, 2008).
100. See 153 Cong. Rec. H3530, H3530-50 (2007).
101. See Library of Congress, supra note 82.
102. See id.
103. See supra notes 1-3 and accompanying text.
104. See 153 Cong. Rec. H3530, H3530 (2007) (statement of Rep. Frank); id. at H3535 (statement of Rep. Scott). Interestingly, some shareholders, when given the chance to address executive compensation, chose not to act. See id. at H3531 (statement of Rep. Roskam). In addition, much of the intellectual foundation for shareholder action arguably is found in the work of Professor Lucian Bebchuk. See H.R. Rep. No. 110-88, at 3 (2007); see also Slater, supra note 2, at 40; Lucian Bebchuk & Jesse Fried, Pay Without Performance (2004). Indeed, Professor Bebchuk was one of only six individuals testifying at the hearing the week after the introduction of House Bill 1257. See H.R. Rep. No. 110-88, at 5. Regardless of whether one agrees with all of his conclusions, Professor Bebchuk admirably has inspired a rich debate over compensation and other corporate governance issues that is strong and long-standing. See, e.g., Stephen M. Bainbridge, Director Primacy and Shareholder Disempowerment, 119 Harv. L. Rev. 1735 (2006);
105. Martin Lipton & William Savitt, The Many Myths of Lucian Bebchuk, 93 Va. L. Rev. 733 (2007);
106. Jonathan R. Macey, Too Many Notes and Not Enough Votes: Lucian Bebchuk and Emperor Joseph 11 Kvetch About Contested Director Elections and Mozart's Seraglio, 93 Va. L. Rev. 759 (2007);
107. John F. Olson, Professor Bebchuk's Brave New World: A Reply to "The Myth of the Shareholder Franchise," 93 Va. L. Rev. 773 (2007);
108. Lynn A. Stout, The Mythical Benefits of Shareholder Control, 93 Va. L. Rev. 789 (2007);
109. E. Norman Veasey, The Stockholder Franchise Is Not a Myth: A Response to Professor Bebchuk, 93 Va. L. Rev. 811 (2007). It is unclear why the wealth of dialogue inspired by Professor Bebchuk and the spirit of those discussions was not brought more to bear on the passage of House Bill 1257 in a more deliberative, considered process of enactment through the holding of additional hearings.
110. See 153 Cong. Rec., H3530, H3536 (2007) (statement of Rep. Bachus) ("A shareholder can ask for such a vote on executive compensation."). Shareholders increasingly seem emboldened to call for shareholder advisory votes on compensation matters. See George Anders, 'Say on Pay' Gets a Push, but Will Boards Listen?, Wall St. J., Feb. 27, 2008, at A2;
111. see also Joann S. Lublin, Say on the Boss's Pay, Wall St. J., Mar. 7, 2008, at B1 (noting Aflac Inc.'s vote on compensation). Moreover, the SEC staff has refused on multiple occasions to limit shareholder efforts related to compensation.
112. See, e.g., Proposal for Advisory Vote on Pay Not Excludable, Staff Tells Allegheny Energy, 40 Sec. Reg. & L. Rep. (BNA) 303 (Feb. 25, 2008) (noting that the SEC staff rejected the omission from proxy materials of the shareholder proposal for advisory resolutions on some executive pay at annual meetings);
113. GE May Not Omit Proposal to Recoup 'Unearned' Bonuses to Senior Executives, 40 Sec. Reg. & L. Rep. (BNA) 106 (Jan. 21, 2008) (noting that the SEC staff rejected the omission from proxy materials of a proposal to allow the business to recoup certain bonuses of executives who did not meet performance targets).
114. See supra note 7 and accompanying text.
115. Although I focus on such efforts by the SEC in this paper, it would be prudent for legislators to study fully the efforts of others, such as state law enforcement officials, to see if they already were able to address adequately any problems. See Crawford, supra note 4 (discussing the Eliot Spitzer litigation against Richard Grasso).
116. The staff of the House Financial Services Committee seemingly attempts to minimize costs and effects of the bill in a document on the committee's web site. See Staff of the House Fin. Servs. Comm., The Facts on H.R. 1257, The Shareholder Vote on Executive Compensation Act (n.d.), available at http://financialservices.house.gov/pdf/FactsOnHR1257.pdf. For example, the document emphasizes that the Congressional Budget Office only expected costs "to cover 'any additional programming, paper, printing, postage and tabulation allow[ed] for the shareholder vote' and concluded that a total of these costs would 'fall well below the annual threshold for private
117. As already noted, House Bill 1257 puts forward a rule that a company's disclosed compensation scheme must appear on the ballot for shareholders. See supra note 76.
118. See Rosen, supra note 7, at 1162-63. Rather than directly running the company on a daily basis, shareholders, for example, can participate in annual meetings and proxy contests. See id. at 1163: see also Robert Charles Clark, Corporate Law 93-105 (1986).
119. See Rosen, supra note 7, at 1163; Franklin A. Gevurtz, Corporation Law 195 (2000).
120. See generally Charles R.T. O'Kelley & Robert B. Thompson, Corporations and Other Business Associations 141-46 (5th ed. 2006).
121. See 15 U.S.C. § 78n (2000); Solicitation of Proxies, 17 C.F.R. §§ 240.14a-1 to -104 (2006); see also Jill E. Fisch, The New Federal Regulation of Corporate Governance, 28 Harv. J.L. & Pub. Pol'y 39 (2004) (discussing the federal and state law divide). However, in the past, the SEC's federal regulatory authority under section 14, referring to proxies, has been far from unbounded. See, e.g., Bus. Roundtable v. SEC, 905 F.2d 406 (D.C Cir. 1990) (refusing to find SEC authority to promulgate a rule under section 14).
122. See Gevurtz, supra note 94, at 1-2 (noting that corporations are creations of state law); Susan Pace Hamill, From Special Privilege to General Utility: A Continuation of Willard Hurst's Study of Corporations, 49 Am. U. L. Rev. 81 (1999) (examining the state law origins of corporate law); see also Rosen, supra note 7, at 1166.
123. The engrossed version of the House bill did contain some amendments, but those appear to focus more on technical issues and to attempt to negate implications, for instance, about the creation of new fiduciary liability. See H.R. 1257, 110th Cong. § 2 (as passed by House, Apr. 20, 2007).
124. See Rosen, supra note 7, at 1166-67.
125. Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, § 307, 116 Stat. 745, 784 (2002) (codified at 15 U.S.C. § 7245 (Supp. V 2005)).
126. See generally Fisch & Rosen, supra note 9.
127. Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, § 404, 116 Stat. 745, 789 (2002) (codified at 15 U.S.C. § 7262 (Supp. V 2005)).
128. See Rosen, supra note 7, at 1167 n.69; cf. Joseph A. Grundfest & Steven E. Bochner, Fixing 404, 105 Mich. L. Rev. 1643 (2007) (suggesting that section 404 is problematic enough that the SEC and the Public Company Accounting Oversight Board should at least try to redraft the rules implementing section 404).
129. For instance, after various problems with the markets in the late 1960s and early 1970s, Congress enacted the 1975 amendments to the Securities Exchange Act. The Commission continues to use that rulemaking authority to create and enhance a national market system. See Rosen, supra note 7, at 1166 n.65.
130. See id.
131. H.R. 1257, 110th Cong. § 2 (as passed by House, Apr. 20, 2007).
132. Representative Frank's comments reinforce this point. He noted, The SEC has said that it does not have the power to go further and compel corporations to allow the owners to vote. Our bill simply does that. Our bill simply says, you will have on your proxy form, printed anyway, what the compensation figures are. . . . We require, if this bill passes, corporations simply to add to that a box that says "I approve/I disapprove," and you can check it as appropriate.
133. Cong. Rec. H3530, 3530 (2007) (statement of Rep. Frank). Interestingly, these comments do not explain why he chose not to suggest an alternative path - giving the SEC additional authority, at its option, to force votes.
134. See H.R. Rep. No. 110-88, at 5 (2007).
135. See 153 Cong. Rec. E788 (2007) (statement of Rep. Schakowsky) (claiming compensation soared "to the point of absurdity" as it was "determined behind closed boardroom doors").
136. Cf. Fisch & Rosen, supra note 9, at 1135-37 (suggesting focusing on committee structure and functions as a more preferable path to corporate governance reform).
137. See 153 Cong. Rec. H3530, H3532 (2007) (statement of Rep. Castle) ("[A]ll six witnesses agreed that a better way to prevent unmerited pay would be to require that publicly traded corporations adopt majority voting policies for the election of board members.").
138. See generally Fisch & Rosen, supra note 9, at 1122; R.G. Lipsey & Kelvin Lancaster, The General Theory of Second Best, 24 Rev. Econ. Stud. 11 (1956).
139. See 153 Cong. Rec. H3699, H3703-04 (2007) (statement of Rep. Price on Amendment No. 8).
140. See id. at 3706 (statement of Rep. Frank). It is interesting that Representative Frank deemed the SEC's efforts insufficient even before he took the helm of the Financial Services Committee. See Letter from Barney Frank, U.S. Representative, to Christopher Cox, Chairman, SEC (Apr. 10, 2006), available at http://www.sec.gov/rules/proposed/s70306/bfrank041006.pdf. Ironically, the SEC reforms went a long way toward instituting disclosure reforms from his own earlier version of proposed legislation from a previous Congress. See H.R. 4291, 109th Cong. (2005).
141. A fascinating view of the SEC's changing priorities in situations of limited resources can be seen in variations of activities cited in its annual reports through the years. See SEC, Annual Reports, http://www.sec.gov/ about/annrep.shtml (last visited Mar. 11, 2008).
142. When considering the legislation passed by the House, the Senate may take a more deliberative approach and avoid or solve some of the problems fostered by the House's process. However, this should not be an excuse for failing to recognize the problems with the initial House process and trying to discern ways to optimize future legislative processes.
143. See, e.g., Associated Press, Economists Call Subprime Fallout Biggest Threat, Mar. 3, 2008, MSNBC.com, http://www.msnbc.msn.com/id/ 23436696/ (reporting that "34 percent of the members of the National Association for Business Economics ranked the financial market turmoil from . . . loan defaults as the No. 1 threat to the economy over the next two years").
144. See Stephen Labaton, Congress Passes Increase in the Minimum Wage, N.Y. Times, May 25, 2007, at A12.
145. See Fair Minimum Wage Act of 2007, H.R. 2, 110th Cong. (as introduced Jan. 5, 2007); Fair Minimum Wage Act of 2007, S. 2, 110th Cong, (as introduced Jan. 4, 2007). By January 10, 2007, the House passed the bill. See Final Vote Results for Roll Call 18, http://clerk.house.gov/evs/2007/ roll018.xml (last visited Mar. 28, 2008). On February 1, 2007, the Senate passed the bill as amended. See Record Vote No. 42, http://www.senate.gov/ legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&session= 1&vote=00042 (last visited Mar. 28, 2008).
146. See Fair Minimum Wage Act of 2007, Pub. L. No. 110-28, § 8102, 121 Stat. 112, 188 (to be codified at 29 U.S.C. § 206); Labaton, supra note 118.
147. For example, the definition of "security" that triggers much of the SEC's jurisdiction over instruments contains a list of items that does not purport to be fully inclusive and includes instruments, such as investment contracts, that are not defined in the statute. See 15 U.S.C. § 77b(a)(1) (2000); 15 U.S.C. § 78c(a)(10) (2000); see also Louis Loss & Joel Seligman, Fundamentals of Securities Regulation 201-03 (4th ed. 2001) (noting the breadth of the definition of security). Interested parties, including the SEC, could argue before courts to have their understanding of these terms adopted through case law. Id. at 216-33 (describing investment contract case law).
148. See supra notes 104-05 and accompanying text. See generally Joel Seligman, The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance (1982) (describing the SEC's history).
149. See supra notes 104-05 and accompanying text.
150. Registration Under the Advisers Act of Certain Hedge Fund Advisers, Investor Acts Release No. 2333, 69 Fed. Reg. 72,054 (Dec. 10, 2004).
151. See Goldstein v. SEC, 451 F.3d 873, 878-84 (D.C. Cir. 2006).
152. See id.
153. See generally Marcel Kahan & Edward B. Rock, Hedge Funds in Corporate Governance and Corporate Control, 155 U. Pa. L. Rev. 1021 (2007).
154. The SEC's enforcement division already has formed a hedge fund working group to examine possible insider trading. See Kara Scannell, SEC Pushes for Hedge-Fund Disclosure, Wall St. J., Sept. 19, 2007, at C3. Of course, the potential effectiveness of any such efforts must be judged against possible push back from the hedge fund community. After the Goldstein decision, members of that community might feel emboldened to challenge SEC actions.
155. See, e.g., Deborah Brewster, Hedge Fund to Sue SEC over Advertising Ban, Fin. Times, Mar. 3, 2008, at 21 (noting a possible plan by a hedge fund manager, who thwarted the SEC's hedge fund registration requirements, to sue the Commission over an advertising ban).
156. See Press Release, Dick Durbin, U.S. Senator, Durbin Hearing on Toy Safety Focuses on Problems with Chinese Imports (Sept. 12, 2007), http://durbin.senate.gov/showRelease.cfm?releaseId=282707 (claiming that over twenty-five million toys were recalled); see also Anne D'Innocenzio, More Toys by Mattel Recalled, Chi. Trib., Sept. 5, 2007, § 3, at 1 (noting the recall of toys with lead paint made in China).
157. See Jayne O'Donnell, Toy Woes May Result in More Power for Safety Agency, USA Today, Sept. 13, 2007, at 3B.
158. See Press Release, Dick Durbin, supra note 129.
159. Legislation considered by Congress sought to authorize additional Consumer Product Safety Commission staff and to provide millions of dollars in funding to the agency. See M.P. McQueen & Christopher Conkey, Congress Weighs Sweeping Overhaul of Consumer Product Commission, Wall St. J., Oct. 30, 2007, at A1.
160. See id.
161. See generally James M. Cain, The Gramm-Leach-Bliley Act of 1999 - A New Regulatory Matrix Develops (ALI-ABA Course of Study, Feb. 15, 2001), WL SF57 ALIABA 539.
162. For example, under the USA Patriot Act, the desire to combat terrorism forced rationalization of anti-money laundering schemes for different types of financial entities, from banks to broker-dealers, typically regulated by separate federal agencies. See William J. Sweet, Jr., et al., The USA Patriot Act of 2001 Impact on Broker-Dealers: Statutory, Regulatory, and Compliance Lessons from Banks' Experience with Bank Secrecy Act and Anti-Money Laundering Enforcement, 1289 Prac L. Inst., Corp. L. & Prac. Course Handbook Series 139 (2002).
163. See Exec. Order No. 12,631, 53 Fed. Reg. 9421 (Mar. 18, 1988).
164. Pub. L. No. 106-554, 114 Stat. 2763 app. E (West Supp. 2006) (codified in scattered sections of 7 and 15 U.S.C.).
165. See President's Working Group on Fin. Mkts., Over-the-Counter Derivatives Markets and the Commodity Exchange Act 1-3 (1999).
166. When the Commodities Futures Trading Commission (CFTC) took steps to exercise authority over certain financial instruments, at the behest of the SEC, Treasury, and Federal Reserve Board, Congress passed legislation limiting the CFTC's authority to do so. See id. at 12-13.
167. See generally id.
168. See Commodity Futures Modernization Act of 2000 (CFMA), Pub. L. No. 106-554, §§ 201-210, 251-253, 114 Stat. 2763 app. E (West Supp. 2006) (codified in scattered sections of 7 and 15 U.S.C.).
169. See id. §§ 301-304.
170. See Dawn Kopecki, The SEC Wants More Answers, Bus. Wk., Sept. 17, 2007, at 34, 34.
171. See id.
172. See id. The SEC's enforcement division created a subprime working group and, by early 2008, the division already had begun dozens of investigations related to the subprime mortgage industry. See Lyda Phillips, In Three Dozen Subprime Investigations SEC Is Asking 'Who Knew What, When,' 40 Sec. Reg. & L. Rep. (BNA) 243 (Feb. 18, 2008);
173. Jeremy Grant, SEC Sets Up Enforcement Groups, Fin. Times, Sept. 12, 2007, at 17.
174. The SEC's interest in mortgage-related matters is not limited to bringing enforcement action. The Commission also must determine whether its current regulations are sufficient as they relate to these matters. For instance, the SEC provides some oversight to credit rating agencies. See SEC, Nationally Recognized Statistical Rating Organizations, http://www.sec.gov/ divisions/marketreg/ratingagency.htm (last visited Mar. 28, 2008). The operations and regulation of ratings agencies get called into question because of the possible role that ratings agencies played in giving positive ratings to subprime securities. See Eoin Callan et al., Break-Up of Ratings Agencies Suggested, Fin. Times, Sept. 27, 2007, at 6.
175. See Alison Vekshin & Jesse Westbrook, Subprime Woes May Spur New Rules, Seattle Times, Sept. 9, 2007, at D3. Determining the appropriate course of legislative action should include congressional hearings aimed at understanding why mortgage-related problems became so prevalent. In crafting solutions, Congress should understand why red flags may not have triggered a sufficient government response earlier on.
176. See Edmund L. Andrews, Fed and Regulators Shrugged as the Subprime Crisis Spread, N.Y. Times, Dec. 18, 2007, at A1 (describing possible warnings related to troublesome loans). In addition to serving as the foundation for any necessary legislation, such investigation constitutes part of the important congressional oversight role described in Part III.B.
177. As mortgage problems continue, more radical ways to address those problems naturally move to the forefront of consideration. See Foreclosures in America: Searching for Plan B, Economist, Mar. 1, 2008, at 77. Such proposals range from Senator Christopher Dodd's idea to bring back something like the Home Owners' Loan Corporation that refinanced mortgages in the wake of the Great Depression to having institutions such as the Federal Housing Administration facilitate refinancing. See id. at 78.
178. See U.S. Gov't Accountability Office, http://www.gao.gov/ (last visited Mar. 11, 2008).
179. See Protection Against Executive Compensation Abuse Act, H.R. 4291, 109th Cong. (2005) (requiring compensation disclosure).
180. See supra note 65 and accompanying text.
181. See Rosen, supra note 7, at 1163 n.54.
182. See Judith Burns, Democrats Voice Concerns over SEC Proxy Proposal, Wall St. J., Aug. 1, 2007, at A8.
183. See Shareholder Proposals Relating to the Election of Directors, Exchange Act Release No. 56,914, 72 Fed. Reg. 70,450 (Dec. 11, 2007) (allowing companies to reject shareholder efforts to secure space for shareholder nominees on ballots for corporate director positions).
184. See Press Release, Barney Frank, Chairman, House Comm. on Fin. Servs., Frank Statement on SEC Action to Restrict Proxy Access (Nov. 28, 2007), http://www.house.gov/apps/list/press/financialsvcs_dem/press112807.shtml; cf. Kara Scannell, Cox, in Denying Proxy Access, Puts His SEC Legacy on Line, Wall St. J., Nov. 29, 2007, at C1 (noting opposition and support for the SEC's fall decision).
185. See Rachel McTague, Casey Counsels Great Caution in Efforts Towards Proxy Access Regime, 40 Sec. Reg. & L. Rep. (BNA) 274 (Feb. 25, 2008); Scanneil, supra note 154.