Threats to Capitalism International Edition: Dateline Qatar Taxes at the QFC

Outside the QFC in the Near Future?

Asa Fitch over at The National reports some distressing news from the Qatar Financial Centre - a corporate tax of 10%.  To add insult to the "grievous" injury caused the tax is retroactive.

 

 

Threat to Capitalism Warning Notice: Expansion of Shareholder Rights

If you weren't scared by my earlier post, you w'll be by this one!

They say that courage is like a potato chip.  Try one and you're likely to be back for more.

After reading my earlier warning on the appearance of yet another manifest danger to the free market system, one of our readers has called my attention to an even greater danger.  And one frankly I had been avoiding mentioning.  But fortified with yesterday's "first chip" of courage, here I am today confronting another manifest imagined danger.

How much fear can one human bear?  I suppose with courage more than one initially thought.  If you're feeling brave, read on.

I know that many of you out there will be saying what could be a greater danger than more disclosure of CEO pay packages?  Socialists on motorcycles?  Disclosure of senior officers' expense reports?  You had how many "massages" in a single night at the Pen in Manila?  Just how many scotches do you have to drink to run up a $750 bar tab in five hours?  By the way what were you doing in a bar for five hours on a business trip?

No this time the danger is an expansion of shareholder rights.  And again we have the FT to thank for making us all aware of the stealth assaults on our way of life, though I would note  more in sadness  than malice that they did also give a forum to those who support the measure.   Fringe individuals and groups like two former SEC Chairmen, Calpers, self-appointed corporate governance experts.  So we may have to mark the FT down as a waverer in the fight to preserve our way of life. 

The proposed SEC rule on "proxy access" would allow shareholders to nominate up to a quarter of a company's board members. It would allow shareholders to nominate directors if they own 1 per cent to 5 per cent of stock, depending on the company's size, and amend a federal measure that allows management to exclude shareholder proposals that nominate directors.

Sounds simple.  And even good.  Who could argue with an expansion of democracy?  Of shareholders' rights?   

The rule under discussion is "probably the most flawed and unworkable proposal" the SEC has issued on proxy access, the US Chamber of Commerce, the business lobby group, wrote in its letter. Tom Quaadman, its executive director for capital markets, said yesterday that the group was keeping all of its options open, including a lawsuit against the SEC.

Wachtell, Lipton, a big Wall Street law firm, said the proposal would have "negative consequences" for US companies and competitiveness.

When a distinguished firm like Wachtell Lipton or the US Chamber of Commerce weigh in, you know you should listen seriously.  No doubt they're remembering just how well the boards of Citigroup, Lehman, Bear Stearns, Enron, and others - selected, I would remind you, without shareholder interference -  enhanced "competitiveness" to know that the system works just fine as it is.

Threat to Capitalism Warning Notice: Disclosure of Salary Metrics

I was just recovering from the warning that bicycle riding socialists were invading our great land to impose mandatory recycling, when a new danger to the free market system has apparently appeared on the horizon. 

It is the provision in the Dodd Frank financial "reform" legislation that requires financial firms to publish the ratio between their CEO's pay package and that of the average worker. 

It doesn't sound like much of a danger but it must be because I read it in the Financial Times where the article was placed prominently  on the first page.  Clearly a reflection of the seriousness of this mortal threat.  

It is I suppose human nature to avoid confronting the hard truth.  And AA is no exception.  Yesterday I said nothing.   But today in a rare display of personal courage, I've decided to post on this so that those of you out there who may have missed the warning, will be alerted.   I'm not sure what you or I can do to stop this pernicious danger to our very way of life.  How we might "Restore Honor to America".

Two quotes illustrate the danger.

The rules’ complexity means multinationals face a “logistical nightmare” in calculating the ratio, which has to be based on the median annual total compensation for all employees, warned Richard Susko, partner at law firm Cleary Gottlieb. “It’s just not do-able for a large company with tens of thousands of employees worldwide.”

It's hard to disagree, I suppose, with learned counsel Susko.  I mean after all there'd be the initial compliance puzzle of distinguishing among median, mean and mode.  Then the onerous data collection (no doubt by hand) of salary and compensation data which of course companies don't bother to keep as they don't need it to calculate pensions, raises, bonuses, payments to local social security schemes,  etc.  "Fred, would you mind bringing in your paystubs from last year?  You won't believe this but some pointy headed bureaucrat in Washington requires that we figure out what we're paying you!"  And what if it were a foreign employee, a Jacque in Paris, a Sanjay in Mumbai, how on earth can banks be expected to figure out what a Euro or Rupee is worth in good old American money?

But beyond that there would be the number crunching.  And if one thing is crystal clear, it's that banks have a real devil of a time working with numbers.   Imagine the difficulty this calculation poses in contrast to more pedestrian things such as valuing Level III assets, determining VaR, running Monte Carlo simulations to mark to market trading positions in exotic instruments, running credit portfolio risk models, keeping track of all those credit card transactions for  their millions of customers, etc.   

When you reflect on all of the above, you'll understand why financial firms are just not equipped to do this sort of thing.  And why imposing it on them is not only unfair but another step on the road to serfdom!

And

“We’re not debating the concept of disclosure – we think it’s a good thing,” said Larry Burton, executive director of the Business Roundtable, which represents chief executives of the biggest US companies. “But you can do more harm than good if you take a well-intended piece of policy and implement it badly. That’s the risk here.”

Another eminently sensible position.  Of course, we agree with the concept of disclosure.  Where we part company is on actually implementing the principle.  In an earlier time, I suppose the refrain was:  "Of course, we hold that all men are created equal.  But just don't ask us to free our slaves.  It would lead to all sorts of harm." 

As would disclosing this data.  First, there would be dissension within firms.  The old collegial spirit of the group broken down.  Then imagine what might happen if shareholders used a metric like this to  determine the value added by the Chairman or CEO.   One hopes that the more enlightened members of our legislative branch are already working to eliminate not just this foolish idea but any disclosure of senior officer compensation.  Or if not now, maybe in November.

Haven't banks and bank CEOs suffered enough unjustified persecution?