Clawback

"Should executives get to keep lavish pay packages when the profits that generated their compensation go up in smoke?" A growing, grumbling chorus says "yes":

With losses mounting at the nation’s largest financial institutions, years of earnings have been erased, investors have lost billions, thousands of employees have been let go, and taxpayers have been tapped to rescue the financial system. But executives who helped set the problems in motion, or ignored them as they mounted, are still doing fine. Humbled, perhaps, but well paid for their anguish.

Executives at seven major financial institutions that have collapsed, were sold at distressed prices or are in deep to the taxpayer received $464 million in performance pay since 2005 . . . Almost half of that consisted of cash compensation.

Yet these firms have reported losses of $107 billion since 2007, a result of their own missteps and the ensuing economic downturn. And $740 billion in stock market value has been lost since these companies’ shares peaked in 2007, just before the housing bubble burst.

Against that landscape, a growing chorus is demanding that executive compensation snared shortly before problems emerged be given back.

“There is a line that separates fair compensation from stealing from shareholders,” said Frederick E. Rowe, a money manager in Dallas and a founder of Investors for Director Accountability, a nonprofit group. “When managements ignore that line or can’t see it, then hell, yes, they should be required to give the money back.”

Corporate boards that awarded lush executive pay packages almost always justified them by saying they encouraged superior performance and were directly tied to benchmarks like profitability.

But now, with a public backlash against excessive pay and taxpayer lifelines extended to crippled companies, the idea of recouping compensation, known as “clawback,” is gaining traction.

Currently there is no legal mechanism for forcing the regurgitation of past pay, so such efforts would need to be bolstered by new legislation. Clawbacks also promise to be a hot-button issue at shareholder meetings in coming months.

Editor's note: Cross-posted from Commercial Law, a member of the Jurisdynamics Network.

Venus setting: A piece of the night

James Watkins, Winter Sunday, Venus Setting (2009)

Gin Blossoms, Pieces of the Night , New Miserable Experience (1992)

Is it any wonder that the stars just don't rush by
When you're only doing 60 through this oh-so-vacant night
But it's lacking something big this time
What the hell did you expect to find
Aphrodite on a barstool by your side

Twelfth night we go
After something everyone should know
Somewhere in the distance out of sight . . . .
Then I saw: gin mill rainfall
What do you remember if at all
Only pieces of the night . . . .

And is it any wonder in the middle of the crowd
If you let your feet get trampled on
When the music is that loud
But you wanted to be where you are
But it looked much better from afar
A hillside in shadow
Between the people and the stars

Twelfth night we go
After something everyone should know
Somewhere in the distance out of sight . . . .

Darwin's beautiful mind, still not fully appreciated

George Richmond, Charles Darwin (1840)

Nicholas Wade's reflections on Charles Darwin upon the bicentennial of his birth and the sesquicentennial of The Origin of Species resonate strongly. It is often said that progress in a science is measured by the speed with which its founders are forgotten. That serious scientists — let alone the American public — continue to debate The Origin and The Descent of Man testifies to the extent to which Darwin was able to accomplish four intellectual breakthroughts that evidently still elude some contemporary scientists:

• Natural selection has no purpose at all.
• Progress is not inevitable.
• Humans are living organisms and therefore subject, all the way down to the workings of the so-called "mind" and all the way up to so-called "culture," to natural selection and sexual selection.
• Group selection applies to humans, too, no matter how willfully humans want to see themselves as individual actors.

This subject could consume both Jurisdynamics and BioLaw for months, but it suffices for the moment to quote a few paragraphs from Nicholas Wade's article:

It is somewhat remarkable that a man who died in 1882 should still be influencing discussion among biologists. It is perhaps equally strange that so many biologists failed for so many decades to accept ideas that Darwin expressed in clear and beautiful English.

The rejection was in part because a substantial amount of science, including the two new fields of Mendelian genetics and population genetics, needed to be developed before other, more enticing mechanisms of selection could be excluded. But there were also a series of nonscientific considerations that affected biologists’ judgment.

In the 19th century, biologists accepted evolution, in part because it implied progress.

“The general idea of evolution, particularly if you took it to be progressive and purposeful, fitted the ideology of the age,” says Peter J. Bowler, a historian of science at Queen’s University, Belfast. But that made it all the harder to accept that something as purposeless as natural selection could be the shaping force of evolution. “On the Origin of Species” and its central idea were largely ignored and did not come back into vogue until the 1930s. By that time the population geneticist R. A. Fisher and others had shown that Mendelian genetics was compatible with the idea of natural selection working on small variations.

“If you think of the 150 years since the publication of ‘Origin of Species,’ it had half that time in the wilderness and half at the center, and even at the center it’s often been not more than marginal,” says Helena Cronin, a philosopher of science at the London School of Economics. “That’s a pretty comprehensive rejection of Darwin.”

Darwin is still far from being fully accepted in sciences outside biology. “People say natural selection is O.K. for human bodies but not for brain or behavior,” Dr. Cronin says. “But making an exception for one species is to deny Darwin’s tenet of understanding all living things. This includes almost the whole of social studies — that’s quite an influential body that’s still rejecting Darwinism.”

The yearning to see purpose in evolution and the doubt that it really applied to people were two nonscientific criteria that led scientists to reject the essence of Darwin’s theory. A third, in terms of group selection, may be people’s tendency to think of themselves as individuals rather than as units of a group. “More and more I’m beginning to think about individualism as our own cultural bias that more or less explains why group selection was rejected so forcefully and why it is still so controversial,” says David Sloan Wilson, a biologist at Binghamton University.

Tech Theory returns

Law and Technology Theory, an affiliate of this blog's extended network, has returned. A global consortium of bloggers will address the question of human autonomy and technology throughout February and March 2009. Arthur Cockfield, the host of this extended series of related posts on Tech Theory, begins the discussion with an overview of instrumental and substantive theories of technology.