stated this already, you believe the government has a right to pay on companies with taxpayer money, in the form of loans?

>> absolutely. when you take money, i run a business is a new rule of games, and if you don't want to play by government rules you don't need the government's money. on pay, there are a couple key facts you need to consider. the compensation is satisfactory. i sit on 2 large institutional funds, one being, a mutual-fund if compensation is fine, and we think within limits, when they not vote on pay, we still do. the large mutual-fund

institutions, fidelity, barkley, vote with management close to 90% of the time. the reason they do is they get assets from management, the corporate pension funds, they get tremendous fees for that and as a result of that they are not going to vote against management, they're not going to -- management team will take the funds away from them and place them with another asset manager so those votes become problematic. we need legislation that says when the mutual-fund vote, on behalf of the investors in that fund, they have to make that vote based on the best interest of those investors, not their best interest as a mutual-fund. a prime example, a few years ago, phenomenal, almost $2 million in payouts to an

executive meeting pfizer. the management team, 2 senior people flew to california. $14 million in fees managing pfizer assets, they voted straight down the line for pfizer. that is what goes on. >> i appreciate that advice and that information and i am looking to play a role, those are precisely the kinds of issues i want to deal with. thank you very much. i yield back. >> i will yield to the gentleman from north carolina. >> i have a question that one of my colleagues asked the previous panel, an interesting one. mr. neugebauer from texas asked, if i presented you with $1,000

and in two weeks you brought back $1 million on that investment, you took $1,000 and turned it into $1 million would it be appropriate for me to pay you $10,000? would that be fair compensation for the return you had given me. go quickly down the rhine -- down the line and then to this question, yes or no? >> i can't answer without knowing more about the circumstances but none of the proposals that anyone here supports, none of the proposals that the government has put together impose this judgment. they involve easier exchange of the government's rules to make decisions or invoke judgment about structure. if you ask me about structure, i

will have clear answers. >> the structure, we can do quickly. i only have 5 minutes. >> you would be getting a very good deal for that amount of money. >> so it is fair compensation. >> things could be fair. >> it might not be fair to the agency getting a higher percentage. mr. turner? >> the question maybe whether you pay $10,000 or not. that isn't the fact we are dealing with. we are paying $1,000. we end up -- in excess of $1 trillion, the bailout of companies to fail. [talking over each other] >> should i get my $1,000 back because they lost so much? >> i have comments on investment

skills, i can put you in touch with my agent, but i would offer this, executive compensation, i rest my testimony that if that were really such a strong link, banks that are about to get out of par, out of t.a.r.p. i read the disclosures of every one of them. not much difference between the two policies. >> would it be fair to up the base compensation and have you incentives? is that best aligned with shareholder interests? >> in some cases yes, in some cases no. i referred to negotiations between shareholders and the board. >> how can the government prescribed corporate governance effectively? >> i am continuing this line. i think it is about

accommodation of corporate governance issue that the state level, very effective in a lot of areas. there are some disclosures at the fcc in, that is from the essential mission of the fcc. some think with respect to the current access proposal as currently designed, exceeded 40. is that 0-4, is disclosure and corporate law. >> is the shareholder profit of executive compensation the way to go? >> it can be particularly dangerous and comparisons to the u.k. are deceptive for a lot of reasons, the structure of shareholders is very different, dominated by insurance companies and private pensions. the u.s. is more retail invested and substantially more union pension ownership. i would say it is not the right

way. >> in the previous panel, mr. sperling testified 2 of the corporate communities setting best practices in regard to executive compensation. is that the way to go? >> we have seen some great best practices promulgated by the council of institutional investors, and best practice by the u.s. chamber of commerce. when the government does it, i would not call it best practice. the government has used its moral authority and the threat of regulation. >> how effectively do you think the executive compensation laws have been? >> the disclosures? it is too early to tell because we have only had two years of history. one issue is there's not enough working history to work from.

in refining the disclosures, i would support those. >> the gentleman from minnesota is recognize. >> you made an interesting point about their not being enough history to make a decision. i think that might even apply to your analysis with regard to banks who paid back their tarp funds and similar compensation systems. part hasn't been around that long. how can you be so sure based on the limited history and why is that metric one that we should rely on when relying on compensation systems that have a causal effect with risktaking? >> i am not sure executive compensation led to systemic risk issues. because of the evidence i have suggested -- >> when you are not sure, maybe

it is, maybe it isn't. the point you are making, i come away with, thinking so what? there is not enough information to use that metric to decide whether it is or it isn't. can you tell me why i am wrong about that? >> lively systems, executive compensation contributed to the crisis. we can rely on goldman sachs who is touring the financial times two months ago, states it very strongly, compensation arrangements, in need to inform them. and across the board, they were wrong. they don't like government

intervention but at this point, there is widely shared consensus that executive compensation arrangements, only room for disagreement. in bringing about the change, everybody agrees. >> professor bebchuk, i will open this up to anyone. one of the things i keep hearing is we have to let american corporations get all the money they want under whatever compensation system that they want because if we don't, then these really smart, talented people are going to go elsewhere. you have heard this line of argument. could you comment on this issue? if we reform the entire american system -- >> i agree with you. it is a bogus argument. the first point is where would

they go? shareholders can invest in private equity. that is fine. these guys did not do that good job so let them go. let them go abroad. >> to european firms compensate the way we do? in line with that, is there another way to conceive of executive compensation, or is the way we have been doing it the only way to see it? i could well be wrong, european firms don't pay their executives this way. >> unfortunately, one area where the united states is way ahead of everybody else is disclosure. we don't have comparable data. karloff of disclosure books we don't know about. >> we have increased disclosure, 27 countries, one of the things we find is the rest of the world

is slowly catching up to the u. s. stock options, all but a couple countries -- >> i would like you to send me that study. >> thank you, mr. bebchuk. >> the arguments that people will go and work elsewhere is unwarranted because everybody here is focusing on changing the structure. to provide compensation -- it is more the argument would be give them the same amounts. >> you offer a book called in search of excess written in 1991. >> this conversation about

excessive executive pay is not a new argument. >> the book recommend more than that is to catch a parana's book, in search of a corporate savior, it influenced my own thinking. >> i am out of time, thank you very much. >> the gentleman from minnesota. >> thank you, mr. chairman. first question for mr. bebchuk. publicly traded companies, high salaries to entertainers. what i am wondering, also subject to shareholder approval. >> i think not. top executive, it is not so much

the amount. we don't have the market at work. when the market is at work, we that private decisions stay. this is a well functioning system. >> i have a question for you, miss minow. disclosure is important, people have to be able to act based on the information that is disclosed. the ultimate way that shareholders can act, what is your opinion? >> the one thing you know about stock is you want to buy low and sell high, bad decision on the part of management, it can be cost-effective to send a message back to the management rather

than sellout. many of the investors including the large institutional investors, are so large and diverse that they are indexed, have nowhere else to go. these are so pervasive, they have nowhere else to go. they do not have the opportunity for the wall street walk. >> given shareholders ultimate ability to sell their shares, shouldn't we be concentrating our efforts on compensation disclosure? >> it is absolutely essential. it doesn't really cover a lot of the kinds of issued revealed by them. >> you talked before about preventing bad compensation practices, little can be done before the structure of the board is fixed, an excellent point that you are making.

>> if you are an elected official, no one runs against them. it is very important that directors not be allowed to serve unless they get simple majority support. >> i would add the contested elections, the commission's current proposal would also be, i believe, plurality of votes so the same standard would apply, it is not majority voting. >> i would open the questioning up to many of the panel members, my previous question regarding athletes, bankers, entertainers, and transparency and disclosure. >> those transactions are made very closely, at arm's length,

between top executives and board. >> why is it that the board can't be changed? >> the ceo fixed board. >> you have this terrible chasing each other. >> i would add that the disclosure, only investors can make decisions that would have an impact on directors using the information they are given and their hands are tied in a number of ways in addition to the difficulty placed on the board, there is a unique work institution, which enlarged fraction of companies prevent shareholders from replacing them in any given elections and the

inability of the shareholders to a man corporate charges, they cannot change -- if they could, some of the things you guys are called on to do, the market cannot put in place corporate government reforms that are viewed as important. >> i would counter that about half of the s&p 1500 is declassified. it is based on progress, declassifying board. proxy advisory services, it is much worse with proxy advisory services, ruled the roost. there is no disclosure in these competition committee rules. we are not likely to see it because the former chief

administrative officer is a special advisor to the chairman. >> will you recognize the gentleman from florida, from california? both warm climates. >> i want to thank the panelists for the lively discussion. you underfor what a sticky wicket this issue is. i want to point out that paul said it very succinctly, very recently, when he said the financial demise we have just witnessed is the result of executive compensation that has been linked to riskier and riskier activity. a number of you have pointed that in your testimony, i think we have no role as a congress.

they affect executive compensation if we don't have an investment, so to speak. when it comes to t.a.r.p. recipients, we have a role to play. what we do have a role to play in other circumstances is empowering shareholders. that is what our focus should be. i think the game is fixed. based on what you just said, if you get one vote, you are reelected. what we all like to have that experience? being elected to congress? it sound fundamentally undemocratic that you don't have someone independently counting the ballots and the majority is not required. i keep coming back to mr. sullivan, the ceo of aig who had performance requirements for bonuses, he went to his board of directors and said we want you

to waive the requirement for performance in this situation even though we just lost $6 billion and give the bonuses anyway and guess what the board did? they said yes! those bonuses are offered and he received $1 million a month after he was fired. it was extraordinary, it is wrong, the american public is on to it. my question to all of you is since you can always manipulate the system as mr. sullivan did, where he actually had performance requirements in place for purposes of giving bonuses, why not just require of all of the members of the board of directors a fiduciary duty to the shareholders? >> the problem is that in forcing this is difficult because there is -- courts are not going to second-guess the

judgment of the elector. this is why the main remedy is to make directors accountable to the judgment of the shareholder. you mentioned a ig. we never had the story of the u.s. public market, a controlled contest for a company the size of aig, because the impediment to folks in a company like that are practically insurmountable. the range and we are discussing, the arrangement that tried to expose the directors directly, the electronic challenge. >> i might know that there's almost never any action abroad against the board of directors, to the best of my knowledge, never brought an action against any of the directors of enron,

only one action against the directors of tyco and that is because the guy was taking a bribe. for the most part, given the way state laws operate, which are not very good and frankly the staff at this committee has been urged to take a proposal to allow shareholders to ask for incorporation and a shareholder friendly state which is the next proposal. for the most part, until you can hold directors accountable, and the proposal just to throw them out, you're never going to get any action because the law-enforcement agencies literally will not touch them, have not touched them even in the most egregious cases. >> many of the directors of failed companies are continuing to serve on boards. it is flabbergasting but they're still there. >> i would counter the observations about state law. delaware is the corporate state law that i spent time studying, it is responsive to

shareholders, particularly responsive to majority voting, they made majority voting easier, we have majority voting, 60% of companies kicked the bums out, people want a proxy ss, the sec wasn't able to do it. that is very responsive to shareholders, i would think. >> when is the last time a director has been held liable by a delaware court for any personal pain out of his own pocket other than personal corruption? >> after the court held it, a kidding paid $160 million, the most egregious situation is okay, the court in delaware. >> this litigation, one specific case was 7 years. >> the gentleman, ranking member from alabama is recognize. >> thank you. i was on the first panel, heard

the testimony. mr. sperling, i have a lot of respect for him. he talked about some of the executive compensation decisions that actually led companies -- they actually increased risk. when we hear that we think of a ig, the some prime lenders, mortgage originators were paid by the volume without regard for the degree of pay. how many -- i will ask each one of you, whether you were here or not, give me a percentage of companies that you think engaged in this risky, dangerous behavior? i will start with the professor.

>> the short view that i alluded to before, incentive structures were flawed, applies to the financial sector across the board. most of the companies in the financial sector, this made the financial crisis so difficult. most of them made decisions, seem to have involved excessive risk-taking. they all generally had those incentive structures, short-term flow that they now generally recognize. >> corporate america, how many corporations do you think engaged in dangerous, risky behavior that endanger the economy? >> the problem of short-term, it

is recognized that executives can take out shares and options, and bonuses are short-term. this is general across corporate america. i would say the financial sector, the opportunities for risktaking are not as large in the financial sector, the fact that we have had these incentives has not manifested itself, is now generally accepted that firms out of the financial sector should fix this very problem of hiring compensation to the long term. >> i would like to be careful not to define excessive risk-taking as the risks that generate losses as opposed to gains and through most of our history, our problem in corporations has been to

encourage individual risk averse individuals and to actually take risks and the duet--individuals in corporations tend to be more risk averse than shareholders, the entrepreneurial spirit is all about risktaking. >> i agree. >> to answer your question specifically, a small number of corporations in terms of number, very large in terms of the assets that they manage, this goes to related issue of do we let them get too big? i applaud the federal reserve's initiative to think about changing capital requirements based on size. that is a useful thing to talk about. i will also highlight in my testimony that quarterly earnings guidance, a dangerous thing that affects a lot of companies, is something companies want to get out of. >> let me ask you this. do you believe that the ceo or the board of directors