Henry Waxman is going after my competitors…I should be happy

Posted by Marc Hodak on December 10, 2007 under Executive compensation | Be the First to Comment

…but I somehow doubt that the Congress wouldn’t just end up gumming it up for all of us.

The House of Representatives Committee on Oversight and Government Reform just published a document on executive pay that claims that “corporate consultants can have a financial conflict of interest if they provide both executive compensation advice and other services to the same company.” The committee is considering additional disclosure rules to remedy this problem.

Henry Waxman, the congressman who requested this report, is apparently concerned that compensation consultants and corporate executives are conspiring to disregard their professional responsibilities to each other and the shareholders. This seems like a reasonable concern, if you consider the board of directors nominally overseeing this transaction as lazy or corrupt. In that case, more disclosure about the arrangements between consultants and management would make sense, if you consider the investors to be alert enough to do something positive about it. As it turns out, all of these assumptions are highly debatable. Investors with competent directors don’t need additional disclosure; investors with incompetent directors can’t be helped by it.

Congressman Waxman should know a thing or two about conflicts of interest, and how much difference disclosure really makes. Waxman gets the lions share of his campaign funding from unions. He has 93% rating from the AFL-CIO based on how he voted on issues of concern to union leaders. Do those facts suggest a conflict of interest? And how many of the citizens in West Hollywood, Santa Monica and Beverly Hills, that hotbed of the working class that Waxman represents, know those particulars? All of it is out there, if you know where to look. The fact is that the link between Waxman’s congressional cash flow and his congressional work won’t penetrate the sunglasses of his constituents any more than the details of corporate HR policy will be taken in by shareholders, despite mounds of disclosure already available to them.

Some problems are simply not big enough for the ham-handed machinery of Congress to fix. Some problems cannot be fixed even by unconflicted lawmakers, and most problems are made worse by their attempts to fix them.