CFA Institute Says Sole Burden for the Bailout Must Not Fall to Shareowners

"The latest proposal to tax large financial institutions is intended to send a message on record bonus compensation and the politically expedient need to recoup taxpayer funds, but ultimately, the pain will be borne by shareowners," said Jim Allen, CFA, head of capital markets policy at CFA Institute.

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Quote startThe government’s interventions in 2009 were a significant, concerted effort to stem further losses to shareowners and debt-holders. However, we remain concerned that corporate management and boards are not appropriately accountable for their abysmal risk management and poor decisions.Quote end

New York, NY (Vocus) January 20, 2010

The latest proposal to tax large financial institutions is intended to send a message on record bonus compensation and the politically expedient need to recoup taxpayer funds, but ultimately, the pain will be borne by shareowners, CFA Institute said today.

“The taxes proposed are not surprising, given the government’s fiscal situation and the prevailing sentiment against Wall Street," said James Allen (bio: http://www.cfainstitute.org/aboutus/press/expertlist/jimallen.html), CFA head of capital markets policy at CFA Institute. “But in the end shareowners pay it all. They've endured tremendous losses from the financial crisis, they’re about to feel the pain from record bonus costs, and next comes the latest weight of an additional ’penalty’ tax. Once again, shareowners are left with the financial consequences of corporate actions without being able to influence the company board or its decision-making.”

Allen added, “The government’s interventions in 2009 were a significant, concerted effort to stem further losses to shareowners and debt-holders. However, we remain concerned that corporate management and boards are not appropriately accountable for their abysmal risk management and poor decisions.”

Even an income tax on bonus compensation awarded to managers will fall short of properly aligning incentives. CFA Institute believes that corporate managers will just seek higher payouts to reflect the lower after-tax payments, with shareowners again footing the bill. Investors demand the following protections:

  • Shareowner access to proxy statements and improved corporate disclosure policies, which are key to reforming the system and avoiding similar crises. So far, little has been accomplished on the reform front.
  • More clear information about how boards compensate corporate managers.
  • Reasonable tools to change boards that fail in their stewardship responsibilities.

The SEC is proposing new rules on proxy access, which CFA Institute supports (read more at http://www.cfainstitute.org/centre/topics/compensation/index.html).

The CFA Institute Investor Update strives to give journalists the investor perspective on an issue-of-the-day. This new communication will come to you on a regular basis and will feature CFA Institute commentary on top regulatory, legislative, and market-making activities. Suggestions and follow up questions are welcome.

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