March 21, 2017

“Off With Their Heads!” Punishing CEOs for Bad Behavior

This Stanford study finds little inclination toward leniency among the American public or corporate boards for CEOs who engage in unethical or immoral behavior.  As far as public sentiment goes, there’s strong support for throwing the book at these folks:

When presented with a series of generic scenario that are based on real situations reported in the press in which CEOs engage in potentially unethical or immoral behavior, many Americans are willing to dole out severe punishment. 45% believe that CEOs should be fired or worse (including sent to prison) for potentially unethical transgressions involving employees, customers, the board of directors, and shareholders. 25% believe that CEOs should not be fired but instead should lose compensation (in the form of reduced bonus or salary), 25% believe they should be reprimanded by the board, whereas 15% believe they should receive no punishment whatsoever.

So, the American public doesn’t have much patience with wayward CEOs.  As it happens, corporate boards have less:

A comparison sample involving 38 real-life examples of CEOs who engage in behavior or actions that are highly analogous to the scenarios presented in this study shows a higher rate of termination than the public demands. Over half (58%) of these real-life scenarios resulted in the eventual termination of the CEO. In 40% of these cases, the board docked the CEO’s compensation through the elimination of bonus or forced forfeiture of unvested equity awards.

The study found that boards are most severe in punishing CEOs for financial misdeeds – in these situations, the CEO was terminated 100 percent of the time.

OMB Speaks on “2-for-1 Regulatory Cuts” Order

This blog from Steve Quinlivan notes that the OMB has issued guidance on President Trump’s executive order mandating two regulatory cuts for each new regulation adopted. In addition to confirming that the order doesn’t apply to the SEC & other “independent” agencies, the guidance addresses the mechanics by which agencies are to implement it. Here’s an excerpt:

In general, the guidance notes that executive departments and agencies (“agencies”) may comply with the EO by issuing two “deregulatory” actions for each new significant regulatory action that imposes costs. The savings of the two deregulatory actions are to fully offset the costs of the new significant regulatory action.

In addition, beginning immediately, agencies planning to issue one or more significant regulatory action on or before September 30, 2017, should for each such significant regulatory action:

– A reasonable period of time before the agency issues that action, identify two existing regulatory actions the agency plans to eliminate or propose for elimination on or before September 30, 2017; and

– Fully offset the total incremental cost of such new significant regulatory action as of September 30, 2017.

Sounds like Yul Brynner in “The Ten Commandments” – “So it shall be written. So it shall be done.”

What Motivates Insider Traders?

Here’s an interesting article from Andrew Snyder about what motivates insider traders – besides greed.   Snyder notes that the infamous spy John Walker compared his espionage to insider trading, and suggests that the motivations for espionage & insider trading are similar. Here’s an excerpt :

Dr. David Charney, a Virginia-based psychiatrist and a consultant to the U.S. intelligence community, is an expert on the mind of the spy following his work for the defense of captured insider spies — most notably FBI moles, special agents Robert Hanssen and Earl Pitts.

In his white paper, True Psychology of the Insider Spy”, Charney writes that most cases of insider spying originate from injuries to male pride and ego. Hence, he puts forward that the core psychology of the insider spy is an intolerable sense of personal failure as privately defined by that person.

Life’s adversities and major stressors (personal, professional, financial) pile on and become insurmountable for the potential insider spy during a decisive period usually in the six to 12 months before he crosses over the line into espionage. What’s pivotal, according to Charney, is how the potential insider spy manages the intolerable sense of personal failure.

John Jenkins