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Memories of a Meltdown - and Lessons in Executive Compensation in Bad Times

(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)

September 14, 2009

The news today was filled with reports on the first anniversary of the collapse of Lehman Brothers. That event represented the first time most of us realized the extent of the financial disaster that played out over the following few months. Not exactly cause for nostalgia.

At around the same time, our local chapter of the National Association of Stock Plan Professionals (NASPP) produced a webcast/conference call entitled "Troubled Company, Workout and Bankruptcy Issues: A little 'gloom and doom' with your morning java." I moderated the panel discussion, which featured very topical discussions by Mike Meyer, a bankruptcy attorney with the Ravich Meyer firm, and Scott Feraro and Kathy Bonneville, compensation consultants with Seabury OCI Advisors, LLC. Obviously, this topic is just as relevant today as it was then. Just to keep on sharing the "gloom and doom", we have made the transcript available - it makes interesting reading. Topics included:

    The role of compensation and risk management in the financial meltdown, and ways to structure compensation in a troubled company situation

    Executive hiring, employment arrangements and retention in workout and bankruptcy situations - including the types of retention arrangements that will "fly" in bankruptcy court

    Strategies in dealing with underwater stock options

Let's hope for a better year ahead.

SEC Enforcement Follow-Up

The SEC just got another incentive to ratchet up its newly aggressive enforcement posture another notch. On Monday, as described in this New York Times article, Federal District Judge Jed Rakoff issued a scathing order (see the link in the Times article) that voided Bank of America's $33 million settlement with the SEC. The enforcement proceeding related to Bank of America's failure to disclose the approval of Merrill Lynch bonus payments in the merger proxy statement. The judge was especially hard on the SEC's failure to go after the individual officers of Bank of America, accusing the parties of using the shareholders' money to reach a settlement that absolves the individuals of responsibility. If a new settlement is not reached and the case goes to trial, the judge will have plenty more opportunity to chastise executives, lawyers and public officials alike. It will be interesting to see whether the negative publicity causes the SEC to take its enforcement activity to yet another new level.


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