The Advisors' Blog

– Mike Andresino and Tom Brennan, Posternak Blankstein & Lund LLP, Boston

Have looked at posts on numerous blogs – plus the non-stop CNBC squawk – here’s a question we are not seeing answered: We assume that some executive compensation limits and corporate governance reforms will be included as a condition of an entity participating in the bailout by selling assets to the government (or its new RTC II). The disconnect we have observed is that every commentator seems to assume that the bailout participants will be publicly traded financial institutions. But it’s clear from both the House and Senate bills that public companies will not be the only “financial institutions” to be bailed out.

There could be all sorts of other sellers that are not publicly traded – mutual savings banks and insurance companies, credit unions, small broker/dealers, and in the case of the Senate bill, if Treasury so determines, big pension funds and private equity partnerships. Some of these are not even corporate entities. No one is complaining about executive compensation at most of these privately-held entities, and at the ones where people are, such as hedge funds, the reforms on the table (no severance, say on pay, proxy access) make no sense. We wonder whether the bill will be qualified to the effect that the executive comp and governance provisions will only apply to the extent that a participating seller or its parent holding company or affiliate has a class of stock registered under the ’34 Act?

Oddly enough, in the discussion draft of the Senate bill, an appropriate distinction is made between public and private sellers when it comes to the equity position the government intends to take. However, the bill leads into its executive compensation limitations this way:

“The Secretary shall require that all entities seeking to sell assets through a program established under this Act meet appropriate standards for executive compensation and shareholder disclosure in order to be eligible.” (emphasis supplied).

That obviously won’t work, unless appropriate means “none”…