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Speaker 3: Well, the market in the software then expected. Peril's report
Speaker 3: certainly a top story today. So this other one got
Speaker 3: a little lost in the shuffle. JP Morgan, Chase CEO
Speaker 3: talking about this one, this was you know, you wake
Speaker 3: up this morning before and I mean this is when
Speaker 3: I woke up and this was like a headline this morning.
Speaker 1: Got through it.
Speaker 3: JP Morgan Chase CEO. Jamie Diamond said the next US
Speaker 3: president must work to bring together a quote deeply divided
Speaker 3: nation as domestic and geopolitical issues mount, and said the
Speaker 3: business world should have representation in the cabin Here's what
Speaker 3: he wrote. The private sector has huge wells of expertise
Speaker 3: and produces eighty five percent of our nation's jobs. This
Speaker 3: was in an opinion piece published early this morning in
Speaker 3: The Washington Post. It should have a seat at the table.
Speaker 3: Yet in recent years, government leaders have often failed to
Speaker 3: engage those in industry. A president should put the most
Speaker 3: talented people, including those from business and the opposite party,
Speaker 3: into their cabinet.
Speaker 1: So a quote seat at the table Jamie Diamond is
Speaker 1: talking about is representation, having those who are in the
Speaker 1: private sector helping to share policy, giving those in business
Speaker 1: a say in government. At its core, this is really governance.
Speaker 3: It's an important concept not just in politics, but also
Speaker 3: in business, and that's corporate governance. Bryce Tingle is an
Speaker 3: expert in it. He's a business law professor at the
Speaker 3: University of Calgary and he's got a new book out.
Speaker 3: It's called Hard Lessons in Corporate Governments. Professor, good to
Speaker 3: have you with us this afternoon. How are you good?
Speaker 4: Thanks, thank you very much, Cale and Till. I'm delighted
Speaker 4: to be here.
Speaker 3: So I just want to start with the failure of
Speaker 3: corporate governance here in the US. Where do you see
Speaker 3: examples of it failing?
Speaker 4: It fails in two different ways. One is, for the
Speaker 4: last thirty years, we've really changed the way companies are governed,
Speaker 4: and as I detail length in the book, we've studied
Speaker 4: the outcomes and they either don't the changes we made
Speaker 4: either don't make any difference the way corporations work, or
Speaker 4: they make things a little worse. And you can see that.
Speaker 4: You know, we really started experimenting with corporate governance in
Speaker 4: the early nineties, and you can see that in things
Speaker 4: like dot com collapse and some of the bad behavior
Speaker 4: that led to the two thousand and eight financial crisis,
Speaker 4: and stock option back dating and executive pay. So even
Speaker 4: if you're not really familiar with the empirical literature, at
Speaker 4: this point, it's becoming pretty obvious that what we were
Speaker 4: doing isn't working. But the second way that our governance
Speaker 4: fails is we've made it really unpleasant to be a
Speaker 4: company that subject to our corporate governance rules. And those
Speaker 4: rules live in the public mark markets, and so we
Speaker 4: have seen over the last twenty some odd years of
Speaker 4: growing reluctant as part of American businesses to join the
Speaker 4: public markets.
Speaker 1: So, you know, going into it's funny, I was thinking
Speaker 1: about we talk about public markets versus private and I
Speaker 1: do wonder about how that plays into it, because you know,
Speaker 1: when you've got folks like US governing companies on a
Speaker 1: quarterly basis, there are certain metrics that we measure them by, right,
Speaker 1: and certainly investors do, and I do wonder how that
Speaker 1: kind of gets in the way of maybe doing better
Speaker 1: when it comes to corporate governance. So have public markets
Speaker 1: failed us?
Speaker 4: I think public markets are failing us. I don't think
Speaker 4: i'd use the past tense. They're failing us because we
Speaker 4: all depend on new innovative businesses coming to the public
Speaker 4: markets and making themselves available for the average investor to
Speaker 4: invest in, and exposing their business in the way that
Speaker 4: your show permits. You get a lot more transparency in
Speaker 4: the public markets. And so if the public markets aren't
Speaker 4: doing the job of attracting new businesses into them, they're
Speaker 4: beginning to fail. They're about half the size they were
Speaker 4: twenty some odd years ago.
Speaker 3: Let's talk compensation and executive compensation here, because let's be honest,
Speaker 3: I think many people would argue it's gotten a little
Speaker 3: out of hand in terms of pay packages.
Speaker 1: If you have a chapter devoted to this.
Speaker 3: For executives of US companies, what is the relationship between
Speaker 3: governance and executive compensation?
Speaker 4: That's an excellent question. In some ways, compensation is what
Speaker 4: got us started in making all the changes we have
Speaker 4: over the last thirty years. The notion behind modern governance
Speaker 4: is that we're trying to control the behavior of managers.
Speaker 4: They're in a situation where they have custody of the
Speaker 4: shareholder's property, that is, the assets of the business, and
Speaker 4: we want to prevent them from misusing them or dealing
Speaker 4: with them in a self interested way, and the most
Speaker 4: obvious way for them to do that is obviously with
Speaker 4: executive compensation, paying themselves too much, and so right from
Speaker 4: the early day of the modern corporate governance regime in
Speaker 4: the early nineties, we saw sustained efforts on the parts
Speaker 4: of multiple parties, including US Congress, to a control executive pay.
Speaker 4: And I think at this point we can all say
Speaker 4: that everything we've done is a failure.
Speaker 3: The salaries might have been reduced or have stayed stable,
Speaker 3: but total compensation has gone through the roof.
Speaker 4: Yeah, it now takes more than twice as much of
Speaker 4: the profits of a company to pay its most senior
Speaker 4: executives than it did back in nineteen ninety two. So yeah,
Speaker 4: it has been a failure. The thing I point out
Speaker 4: in my book is that the very things that we
Speaker 4: tried as part of our corporate governance reforms actually were
Speaker 4: the one things that led to this huge increase in
Speaker 4: executive pay. The truth is executive pay had stayed pretty
Speaker 4: flat from the end of the Second World War into
Speaker 4: the late nineteen seventies, and then it rose only very
Speaker 4: slightly in the nineteen eighties. The time when we start
Speaker 4: experimenting with the corporate governance inly nineties is when executive
Speaker 4: pay just explodes.
Speaker 1: You know, we were thinking about a couple of companies,
Speaker 1: to be quite honest with you, when Tim and I
Speaker 1: were prepping for this price and like Tesla, good corporate governance, boeing,
Speaker 1: good corporate government.
Speaker 3: Are you laughing? He's laughing.
Speaker 1: Good corporate governance, which we've all been talking about, kind
Speaker 1: of a real life succession drama playing out.
Speaker 4: Yeah, well, let's stay. Let's stay Tesla because Elon Musk
Speaker 4: is always the most entertaining. So you can have a
Speaker 4: couple of views about that Tesla pay package. I mean,
Speaker 4: of course, it seems like it's absurdly too big, But
Speaker 4: the fifty eight billion dollars maybe fifty two billion dollars
Speaker 4: if you parse the numbers carefully. The the Delaware court
Speaker 4: threw it out. And what's interesting is the total irrelevance
Speaker 4: of the reason the Delaware court threw it out. So
Speaker 4: the Delaware court threw it out because it said Elon
Speaker 4: Musk has got too much power, and the independent directors
Speaker 4: on the board of Tesla weren't really independent and they
Speaker 4: didn't disclose to the shareholders at the time the shareholders
Speaker 4: voted back in twenty eighteen that they weren't as independent
Speaker 4: as maybe the shareholders. That, in a nutshell, is what
Speaker 4: the ort held. That strikes lots of people, including the
Speaker 4: shareholders who voted again to award Elon his pay package
Speaker 4: just a month ago. Strikes a lot of observers. Is
Speaker 4: dumb and kind of irrelevant. It was clear in twenty
Speaker 4: eighteen that Elon Musk was the driving force behind Tesla,
Speaker 4: and the size of his pay package, the terms on
Speaker 4: which it was made available to him was well reported
Speaker 4: by the financial press. It was fairly and accurately disclosed,
Speaker 4: and the materials that were sent to the shareholders. It
Speaker 4: would have been no trouble for the shareholders to evaluate
Speaker 4: its impact in terms of dilution, and they voted in
Speaker 4: favor of it. It's safe to say that no shareholder
Speaker 4: cast their vote under a mistaken belief about the independence
Speaker 4: of Elon's board. Yet that turned out to be crucial
Speaker 4: for the Delaware decision, and it's a sign of the
Speaker 4: way in which our beliefs about corporate governance have begun
Speaker 4: increasingly to diverge from reality.
Speaker 3: We only have twenty seconds left. But what about Fox Corp?
Speaker 3: News Corp. Because there's this great New York Times story
Speaker 3: last week about the secret battle for the future of
Speaker 3: the Murdoch Empire.
Speaker 4: Very briefly, well, it's a great question. Now, I'm not
Speaker 4: trying to judge in twenty seconds, but it is a
Speaker 4: sign that often the most important parts of corporate governance
Speaker 4: aren't about who's the independent director or whether or not
Speaker 4: the shareholders have majority voting. It's about the character and
Speaker 4: personalities leading the company.
Speaker 3: All right, we're gonna have to leave it there, Thanks
Speaker 3: so much for joining us. That's Professor Bryce Tingle. His
Speaker 3: new book is called Hard Lessons in Corporate Governance. He's
Speaker 3: business law professor at the University of Calgary. Joining us
Speaker 3: from Calgary.
Speaker 1: It's a really timey topic. We kind of talk about
Speaker 1: it a lot, corporate governance.
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