Le dégorgement de la loi Sarbanes-Oxley : l’arrêt SEC c/ Jensen du 31 août 2016

La loi Sarbanes-Oxley du 30 juillet 2002 a introduit par son article 304 la notion de dégorgement – clawback – des bonus et autres rémunérations incitatives reçues par les directeurs généraux -CEO- et les directeurs financiers lorsque leur société doit réviser ses comptes en raison de mauvaise gestion (« misconduct »). Pour la première fois, une cour d’appel fédérale vient de décider si les cadres devant dégorger leur rémunération doivent avoir été personnellement impliqués dans cette mauvaise gestion. C’est le thème du commentaire d’arrêt que je viens de publier dans le Bulletin Joly Bourse No10 du 01 octobre 2016 : https://www.lextenso.fr/numero_revue/bulletin-joly-bourse/158/10/1475272800  p.444

 

 

Paul Krugman on Andrew Hall

Paul Krugman,ever the populist,has now jumped into the Hall fray ( read Rewarding Bad Actors NYT Aug.2,2009 ).In his editorial,Professor Krugman fires a broadside against Goldman Sachs’high frequency derived profits and against Mr.Hall.Arguendo,one might  find  high frequency trading to be reprehensible because those with higher speed computers are said to have an unfair advantage over the Lumpenproletariat whose computers dawdle along at much lower speeds.To condemn Mr.Hall,Professor Krugman then argues: »What about Mr. Hall? The Times report suggests that he makes money mainly by outsmarting other investors, rather than by directing resources to where they’re needed. Again, it’s hard to see the social value of what he does. »Does Professor Krugman really think there is something wrong about being smarter than others?Is this an indication of a belief that « equality » really means dumbing down to the lowest common denominator?His linking  outsmarting other investors and not directing ressources where they are needed is not mentionned in the article he cites as a source ( see David Segal ) nor is there a logical link between the proposition that Mr. Hall outsmarts others and the alleged lack of social value in what a Mr. Hall does with his greater smarts unless one were to hold the belief,as Professor Krugman implicitly appears to hold,that being smarter is unfair and has no social value.More’s the pity that such a leading economist should show such a bias.

James Madison and Hall’s $ 100M bonus

On July 27,2009,I posted a note  ( below: Rémunération des cadres bancaires : les $100 millions d’Andrew Hall ) on the  debate raging around Andrew Hall’s right to a $ 100 million bonus,the  topic now of David Segal’s  front page article in Sunday’s New York Times ( August 2,2009) .In my note I  stated that while there were sound reasons to reform the remuneration of traders to avoid excessive risk-taking and to adjust it to account for risks spread over a long period ( the classic problem of long tailed distributions such as Pareto or Lévy ones) there are even sounder reasons for the provision in the U.S. Constitution  prohibiting the  passing laws that affect contract rights retroactively. These reasons were best articulated by James Madison, writing as Publius, in 1788 ,No44 The Federalist Papers:

“Bills of attainder, ex post facto laws, and laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. The two former are expressly prohibited by the declarations prefixed to some of the State constitutions, and all of them are prohibited by the spirit and scope of these fundamental charters. Our own experience has taught us, nevertheless, that additional fences against these dangers ought not to be omitted. Very properly, therefore, have the convention added this constitutional bulwark in favor of personal security and private rights; and I am much deceived if they have not, in so doing, as faithfully consulted the genuine sentiments as the undoubted interests of their constituents. The sober people of America are weary of the fluctuating policy which has directed the public councils. They have seen with regret and indignation that sudden changes and legislative interferences, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more-industrious and less informed part of the community. They have seen, too, that one legislative interference is but the first link of a long chain of repetitions, every subsequent interference being naturally produced by the effects of the preceding. “

President Madison’s wise observations deserve to be heeded by those who now seek to retroactively modify contract rights.

Rémunération des cadres bancaires : les $100 millions d’Andrew Hall

Le débat continue de faire rage.Cette fois, il s’agit de la rémunération d’Andrew Hall, patron de la division Phibro de Citigroup.Celui-ci, contractuellement devrait toucher $100 millions au titre de l’exercice 2009.Cette perspective n’est pas au goût de Ken Feinberg, le tsar des traitements de cadres de sociétés aidées par le gouvernement. D’ou la relance du débat sur le droit à la modification ex post facto unilatérale d’un contrat. Comme l’explique Stephen Grocer dans le Wall Street Journal, la division Phibro a gagné beaucoup d’argent pour Citigroup et continue d’engranger des bénéfices plus que coquets et sera un facteur primordial du remboursement des aides gouvernementales par Citigroup.S’il est nécessaire de réformer le mode de rémunération  des opérateurs sur les marchés ( les fameux « traders ») pour prendre en compte l’étalement dans le temps des risques découlant des opérations (le problème de la longue traine des distributions de type Pareto ou de Lévy par exemple),il convient de le faire sans pour autant battre en brèche la disposition de la constitution américaine interdisant la modification unilatérale rétroactive des contrats. James Madison, commentant  cette disposition en 1788 dans le No 44 des Federalist Papers  en démontre la nécessité:

“Bills of attainder, ex post facto laws, and laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. The two former are expressly prohibited by the declarations prefixed to some of the State constitutions, and all of them are prohibited by the spirit and scope of these fundamental charters. Our own experience has taught us, nevertheless, that additional fences against these dangers ought not to be omitted. Very properly, therefore, have the convention added this constitutional bulwark in favor of personal security and private rights; and I am much deceived if they have not, in so doing, as faithfully consulted the genuine sentiments as the undoubted interests of their constituents. The sober people of America are weary of the fluctuating policy which has directed the public councils. They have seen with regret and indignation that sudden changes and legislative interferences, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more-industrious and less informed part of the community. They have seen, too, that one legislative interference is but the first link of a long chain of repetitions, every subsequent interference being naturally produced by the effects of the preceding. “

Ces observations du père de la constitution méritent toutes l’attention de ceux qui aujourd’hui veulent remettre en cause les droits contractuels.

French influence in Korea?

The recent publication of Robert Cohen’s book « Turning Around a Bank in Korea: A Business and Cultural Challenge » got me thinking. Here was a Frenchman, who after a distinguished 25-year career at the old Credit Lyonnais (now Calyon after some Executive Life troubles that got it absorbed by France’s « Green Bank », Caisse Nationale du Crédit Agricole), including 10 years as CEO of Crédit Lyonnais -Americas and a 3-year stint as vice-chairman of Republic National Bank under the late Mr. Safra took on the challenge of becoming the CEO of Korea’s largest bank, Korea First Bank with a mandate to turn it around. His slim volume is interesting on several levels: what  cultural and business challenges did he face, and how did he meet them, running a bank when you do not speak the language, a bank where women with PhD’s in economics are bank tellers ,a society in which seniority and age are possibly even more important than in Japan, a country where unions demonstrate by banging on drums for hours on end in the outer office of the CEO, a culture where his wife was expected to address him in Korean as Your Excellency ( I suspect he did not object too strenuously, when in Seoul…),a country where 15-or 30-year fixed rate mortgages were unknown because people only took out 3-to 5- year floating rate mortgages, where people spend fortunes on credit cards and do not use cheques. Such were his challenges and meet them well and truly he did. Not only was he able to turn around the bank and make a big pile for the private equity fund that had bought the basically bankrupt bank from the Korean Government after the 1997 Asian crisis by reselling the bank to Standard Chartered but he was the first to break the glass ceiling for Korean women when he promoted a woman to the post of senior vice president, something that had never been done before in Korea. Not at all a bad record for 4 years in Korea.

Was Robert Cohen the first Frenchman to exert such an influence in Korea? Important though his accomplishments may be, another Frenchman, General Legendre, blazed the trail 100 years before him. While Mr. Cohen fought with unions, General Legendre fought for the Union. Charles Legendre, born in 1830, was educated at the College Royal at Rheims and graduated from the Sorbonne. He met the daughter of a New York lawyer, Clara Mulock, married her in Brussels, moved to the United States and became a citizen. When the War Between the States started in 1861 he enlisted in the 51st NY Volunteers, Infantry. He served with distinction , was badly wounded at the battle of New Bern, North Carolina on 14 March 1862, « a ball injuring both the corner of the jaw and the spinal process. » Legendre was cited for displaying « most conspicuous courage until he fell wounded. »Later, serving under General Grant at the Second Battle of Wilderness he lost his left eye and the bridge of his nose. That did not prevent him from directing the defense of Annapolis from his hospital bed against Robert E. Lee’s last raid. He was given the title of brevet brigadier-general upon being honorably discharged and was soon appointed US consul to Amoy in China (1866-1872).

After a difference of opinions with the American minister in Beijing, Legendre resigned from the US Foreign Service to enter the Foreign Service of the Emperor of Japan. For his role in averting a war between Japan and China over Formosa, the Emperor made him the first recipient of the newly created Order of the Rising Sun. After spending 18 years in Japan, Legendre was called by the King of Korea in 1890 to become Vice President of the Home Office of Korea and adviser to the Household Department of the King. He died of apoplexy in 1899.It is hard for us today, used as we are to living and working in a global village, what it must have represented for such a man as General Legendre to go to Korea, a country about which not much was known at the time, and become one of the most influential people after the King!

Two very different destinies for two men of French origin who, 100 years apart, by happenstance, found themselves exerting a significant influence over Korean affairs. History: plus ça change plus c’est la même chose.

When Bonus Contracts Can Be Broken

Amid all the otherwise legitimate furor over the A.I.G. bonuses,it is refreshing ,and useful,to see the contract law framework for a good legal analysis set out by well regarded law professors such as Charles Fried of Harvard :see When Bonus Contracts Can Be Broken

Contracts Now Seen as Being Rewritable

For an update on the debate on the ability to rewrite employment contracts after signature see the NYT article by Walsh and Glater