The Advisors' Blog

– Broc Romanek

Here’s the intro from this blog by Matt Kelly:

For corporate governance and compliance thinkers, Mylan Labs is the gift that keeps on giving. Earlier this week, we looked at the compensation incentives Mylan designed for senior executives—incentives that drove them to raise the price of EpiPens to punishing levels for consumers.

Let’s keep pulling on that thread. It leads to some excellent questions about boardroom governance, and as often happens with U.S. securities law these days, those questions don’t have good answers.

Those pay incentives, worth millions of dollars to CEO Heather Bresch and other senior executives, came from Mylan’s compensation committee. The committee itself used outside consultants (Meridian Compensation Partners and the law firm Cravath, Swaine, and Moore, according to the 2015 proxy statement), but ultimately the committee’s three members were responsible for creating the conditions that reward Bresch for a strategy of steep and steady price hikes.

Wait a minute, I thought. Don’t compensation committees have to disclose how their pay plans might lead to unnecessary risk-taking? Wouldn’t that be reflected in Mylan’s proxy, since Bresch’s moves have led to a reputation risk nightmare?

Yes to the first question, no to the second. Which is precisely the governance dilemma U.S. securities law has foisted onto Corporate America.

Our compensation disclosure rules only address financial risks, relevant to shareholders. They ignore all the other enterprise risks that sloppy executive compensation can cause, and leave a company fumbling in front of all its other stakeholders.