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The Daily Wildcat

The Daily Wildcat

 

    Why corporate responsibility might not be an oxymoron

    Most people would be more than grateful after being saved from drowning, but a few Americans would be disappointed that their life preservers weren’t made of gold.

    If that notion seems extraordinary or even inconceivable, then someone hasn’t been paying much attention to the TARP (Troubled Assets Relief Program) bailout or Recovery and Reinvestment Act of 2009.

    After various concessions, Congress passed the economic stimulus package last Friday in hopes of jump-starting the long, arduous journey towards financial recovery. Unlike the first round of the previous $700 billion bailout of financial institutions, the stimulus package contains new, staunch regulations concerning executive compensation of banks receiving bailout money.

    An amendment inserted by Chris Dodd, chairman of the Senate Committee on Banking, Housing, and Urban Affairs, would limit the compensation of top executives at any bank receiving bailout funds, otherwise known as taxpayer money. The limits would apply to bonuses issued to the executives and place a cap of no more than one-third of their base salary.

    To put the difference between this amendment and previous practices in their proper context, Bank of America CEO Kenneth Lewis received a base salary of $1.6 million, but took home a total compensation of more than $16.4 million. These limits would remain in place as long as financial institutions still maintain taxpayers funds or until they are repaid.

    The news of this stringent amendment has industry analysts buzzing about the potential consequences of limiting executive pay. Scott Talbott, a representative from the Financial Services Roundtable, characterized industry concerns by saying, “”If the goal of TARP is to make companies stronger, to get them back on their feet so they can stand on their own, and this drives away key executives, this is a problem.””

    While my confidence in Talbott’s concern for the taxpayers of this country is clear, I find his conclusion to be murky at best. Talbott’s notion of “”key executives”” may be correct, but only if reworded as “”executives that were key to the economic meltdown.””

    Like Talbott, many others have already decried the destruction of the corporate incentive system as a blow to capitalism. Without ridiculously gross bonuses, American corporations are at risk for losing all those hotshot executives that worked so hard to foster and care for our economic future. Worse yet, we may have to resort to highly educated and responsible executives whose motivations are ethical treatment of taxpayer money and fostering a sustainable approach for economic recovery and, eventually, growth.

    Other than his concern for the well-being of the everyday Joe, what stake do Talbott and Financial Services Roundtable have in this matter? As representatives of the 100 largest financial firms in the country, FSR is deeply vested in the profits and financial future of the top players in the industry.

    Many free-market enthusiasts might view this as an abomination of government intervention into the sacred realm of the corporate world. If the last few months haven’t opened their eyes, then they may just be glued shut. True to the last eight years, the former incentive system was a hybrid of fiscal restraint and small government, hitting two birds with one stone and upholding conservative principles of government.

    Still not signed into law, the economic stimulus package presents more questions than answers. The objections of industry insiders like Talbott do contain legitimate concerns. The ability to make unfounded sums of money in a single year is an attractive incentive for virtually any person. However, the implication that limiting executive compensation will result in a massive corporate exit is clearly motivated by a conflict of interests.

    A bank, as a private institution, has the capacity to award executives an appropriate compensation package as they see fit. Banks receiving taxpayer funds have an ethical – and now legal – obligation to conduct business in a fiscally responsible manner. While there will forever be opponents of the bailout, retroactively condemning the fall of corporate America and rise of socialism, the need for financial recovery demands that the billions of taxpayer dollars be injected into our economy hand-in-hand with corporate responsibility.

    Once the bailout is signed into law, there won’t be a sudden wave of idealism and ethics. Executives who once took advantage of the pseudo-free market may try to take advantage of the misfortune of others. What is needed most is that key executive positions in critical financial institutions be filled with new blood, professionals who have goals of long-term financial recovery and success.

    -ÿDaniel Sotelo is a political science junior. He can be reached at letters@wildcat.arizona.edu.

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