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Relax Restrictions on Shareholders’ Lawsuits Over Executive Compensation, House Subcommittee Chairman Urges

June 3, 2009
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Shareholders should be given more power to bring lawsuits against companies for paying excessive compensation to executives, the chairman of the House subcommittee that has jurisdiction over securities matters said Tuesday, June 2.

“We probably have to re-examine the capacity of shareholders to bring lawsuits,” said Rep. Paul Kanjorski, D-Pennsylvania, who is chairman of the House Financial Services Committee’s Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises.

“It doesn’t sound good. Nobody likes litigation, but in reality, that does get attention of boards and managers,” he said in a talk in Washington sponsored by the American Constitution Society for Law and Policy of Washington and the Institutional Educational Foundation of Cambridge, Massachusetts.

Kanjorski also suggested that shareholders be given more say in the election of corporate directors.

Replacing an entire board of directors is extremely difficult, he said. New methods need to be found to incorporate “better democratic principles into corporations,” Kanjorski said.

He also called for examining new ways of handling debates about compensation at shareholder meetings and within boards of directors, and said a requirement that public corporations respond to questions from shareholders should be considered.

However, Kanjorski made it clear that he thinks Congress should be cautious when considering ways to rein in executive compensation.

“It’s not easily handled,” he said.

“We should be very careful in determining whether or not the Congress or some other public institution should establish the rules of compensation in our society,” Kanjorski said.

Executive compensation is “not the most important thing in the world,” in terms of business and economic health, he argued.

It’s more important that we create and use this atmosphere to rethink the laws that govern American and world business institutions,” including the rights of shareholders, Kanjorski said.

Corporate compensation and bonuses are determined primarily by boards of directors and shareholders.

“Now what we’re getting very close to is deciding, because of the hot temper of the moment on salaries and bonuses, whether or not we want to extract that decision-making process from where it presently lies and put it somewhere else,” Kanjorski said.

Congress is not well-equipped to determine executive or other types of compensation, he said, warning that such power could quickly expand to encompass government power to determine many other salaries.

“That law will apply eventually to you or will cause a precedent for us to further extend ourselves into everyone’s life,” Kanjorski said.
The House Financial Service Committee is tentatively scheduled to hold a hearing on executive compensation issues June 11.


Filed by Sara Hansard of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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