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Governance, Executive Compensation and Excessive Risk

Governance, Executive Compensation and Excessive Risk in the Financial Services Industry

The financial crisis of 2008/09 has brought about a wide range of policy measures, and these measures have helped to circumvent a major global recession. The crisis has also reinforced the need for structural reforms—especially in the banking and financial services sector—that still have to be addressed by governments. In addition, the crisis has shown the need for policy coordination on a global level: prudent regulation and supervision on a national level alone is not sufficient to ensure that we lay the groundwork for a sustainable growth path.

This conference brought together the latest academic research and industry best practices on corporate governance and compensation in the financial industry as well as the latest proposals for reform and regulation of these practices. The goal of the conference was to take stock of the recent research findings and to debate the various regulation proposals—at both the national and international level—to better identify the areas of consensus (if any) on these important issues. Ultimately, our goal was to contribute to help firms and governments to craft the best policies for promoting socially responsible and sustainable economies.

Co-hosted by: Friedrich-Ebert-Stiftung and the Sanford C. Bernstein & Co. Center for Leadership and Ethics.

Thursday May 27, 2010 from 7:00 p.m. – 9:00 p.m.
Friday May 28, 2010 from 9:00 a.m. – 6:00 p.m.
Venue: Faculty House

AGENDA

Thurs. May 27
7:00 – 9:00 PM
 

Welcome Dinner, hosted by Friedrich-Ebert-Stiftung
Keynote speaker: Dean Baker
Co-director
Center for Economic and Policy Research

Friday May 28
8:30 – 9:00 AM
 

Breakfast and Registration

9:00 – 9:10 AM

Welcome Remarks and Introduction

Chris Mayer
Senior Vice Dean
Paul Milstein Professor of Real Estate
Columbia Business School

Bruce Kogut
Sanford C. Bernstein & Co. Professor of Leadership and Ethics;
Director
Sanford C. Bernstein & Co. Center
Columbia Business School

Werner Puschra
Director
Friedrich-Ebert-Stiftung, New York Office
(See YouTube video of introduction and opening keynote)

9:10 – 9:40 AM

Opening Keynote: 

Susan Schmidt Bies
Former Member of the Federal Reserve Board

9:40 – 11:15 AM

Governance in Banks and Bank Holding Companies
What kind of frameworks need to be adopted by governments in order to promote better governance of Bank Holding Companies?
(12–15 minute presentations, 20 minutes for discussion)

Hamid Mehran (Moderator)
Assistant Vice President
Financial Intermediation Function
Federal Reserve Bank of New York

Charles Calomiris
Henry Kaufman Professor of Financial Institutions,
Columbia Business School (Download presentation PPT)

Tano Santos
Franklin Pitcher Johnson, Jr. Professor of Finance and Economics
Columbia Business School (Download presentation PPT)

Harald Hau
Associate Professor of Finance
INSEAD (Download presentation PPT)

Otavio Damaso
Head of Department
Financial System Regulation and Organization
Banco Central do Brasil

Stéphane Jacobzone
Senior Economist, Regulatory Policy Division
OECD (Download presentation PPT)

(See video on YouTube Part 1 | Part 2)

11:15 – 11:30 AMCoffee Break
 
11:30 – 1:00 PM

Compensation  and Leverage
(12–15 minute presentations, 30 minutes for discussion)

John Coffee (Moderator)
Adolf A. Berle Professor of Law
Columbia Law School

Bruce Kogut
Sanford C. Bernstein & Co. Professor of Leadership and Ethics;
Director
Sanford C. Bernstein & Co. Center
Columbia Business School (Download presentation PPT)

Jose Scheinkman
Theodore A Wells ’29 Professor of Economics
Princeton University (Download presentation PPT)

Patrick Bolton
Barbara and David Zalaznick Professor of Business
Columbia Business School (Download presentation PPT)

Brandon Rees
Deputy Director
Office of Investment American Federation of Labor and Congress of Industrial Organizations

(See video on YouTube Part 1 | Part 2)

1:15– 2:00 PM

Lunch and Keynote Speaker

Introduction by: Jeff Gordon
Alfred W. Bressler Professor of Law
Columbia Law School

Henry Hu
Director
Division of Risk, Strategy, and Financial Innovation
U.S. Securities and Exchange Commission (SEC)

(See video on YouTube)

2:15– 4:00 PM

Excessive Risk and Compensation
How do we regulate compensation to deter the taking of excessive risk? What incentives can deter risky practices?
(12–15 minute presentations, 30 minutes for discussion)

Werner Puschra (Moderator)
Director,
Friedrich-Ebert-Stiftung, New York Office

Lucian Bebchuk
William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance;
Director
Program on Corporate Governance
Harvard Law School (Download presentation PPT)

René Stulz
Everett D. Reese Chair of Banking and Monetary Economics;
Director
Dice Center for Research in Financial Economics
Ohio State University (Download presentation PPT)

Wayne Guay
Yageo Associate Professor;
Associate Professor of Accounting
Wharton (Download presentation PPT)

Peter Bofinger
Professor of Economics
University of Würtzburg;
Member
German Council of Economic Experts (Download presentation PPT)

(See video on YouTube Part 1 | Part 2)

4:00 – 4:20 PMCoffee Break
 
4:20– 6:00 PM

Governance of Multinational Bank Holding Companies and the role of the Financial Stability Board?
(12–15 minute presentations, 25 minutes for discussion)

Katharina Pistor (Moderator)
Michael I Sovern Professor of Law
Columbia Law School

Avinash Persaud
Member
Network for Sustainable Financial Markets;
Chairman
Intelligence Capital Limited

Erik Berglof
Chief Economist and Special Adviser to the President
European Bank for Reconstruction and Development (EBRD) (Download presentation PPT)

Andreas Botsch
Special Advisor
European Trade Union Institute / European Trade Union Confederation (ETUI / ETUC);
Head
Economics Department, German Confederation of Trade Unions (DGB)

(See video on YouTube)

6:00 PM

Closing Remarks

Patrick Bolton
Barbara and David Zalaznick Professor of Business
Columbia Business School

6:00 – 7:00 PMReception hosted by the Sanford C. Bernstein & Co. Center
 

Related Academic Papers, Reports and Articles

 

Adams, Renée B. and Hamid Mehran. “Bank Board Structure and Performance: Evidence for Large Bank Holding Companies” 2010.

Adams, Renée B. and Hamid Mehran. “Is Corporate Governance Different for Bank Holding Companies?” April 2003.

Ahrend, R., J. Arnold and F. Murtin, "Prudential Regulation and Competition in Financial Markets," OECD Economics Department Working Papers, No. 735, OECD Publishing, 2009.

Balachandran, Sudhakar, Bruce Kogut and Hitesh Harnal. “The Probability of Default, Excessive Risk, and Executive Compensation: A Study of Financial Services Firms from 1995 to 2008” May 2010.

Bebchuk, Lucian A., Alma Cohen and Holger Spamann. “The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000–2008” February 2010.

Bebchuk, Lucian A. and Jesse M. Fried. “Paying for Long-Term Performance” April 2010.

Bebchuk, Lucian A. and Holger Spamann. “Regulating Bankers' Pay” October 2009.

Becht, Marco, Patrick Bolton and Ailsa Roell. “Corporate Law and Governance” 2007.

Black, J. and S. Jacobzone (2009), “Tools for Regulatory Quality and Financial Sector Regulation: A Cross-Country Perspective”, OECD Working Papers on Public Governance, No. 16, OECD Publishing, OECD.

Bolton, Patrick, Hamid Mehran and Joel Shapiro. “Executive Compensation and Risk Taking” May 27, 2010.

Bolton, Patrick, Jose Scheinkman and Wei Xiong. “Pay for Short-Term Performance: Executive Compensation in Speculative Markets” 2005.

Cheng, Ing-Haw, Harrison Hong and Jose Scheinkman. “Yesterday's Heroes: Compensation and Creative Risk-Taking” May 2010.

Core, John E. and Wayne R. Guay. “Is there a case for regulating executive pay in the financial services industry?” January 2010.

Directorate for Financial and Enterprise Affairs, OECD Steering Group on Corporate Governance, "Corporate Governance and the Financial Crisis: Conclusions and emerging good practices to enhance implementation of the Principles," 2010.

Greenberg, Maurice R. “Regulation of Executive Compensation in Financial Services” February 2010.

Hau, Harold and Marcel Thum. “Banks and the Crisis” October 2009.

Hau, Harold, Johannes Steinbrecher and Marcel Thum. “Board (in)competence and the Subprime Crisis” January 2009.

Hu, Henry T.C. “Misunderstood Derivatives: The Causes of Informational Failure and the Promise of Regulatory Incrementalism” April 1993.

Mehran, Hamid and Joshua Rosenberg. “The Effect of CEO Stock Options on Bank Investment Choice, Borrowing, and Capital” March 2009.

“Thematic Review on  Compensation” Peer Review Report, Financial Stability Board, March 2010.

Organisation for Economic Co-Operation and Development. “Transparency and Integrity in Lobbying”

Organisation for Economic Co-Operation and Development. “Policy Framework for Effective and Efficient Financial Regulation” 2010.

Stultz, René M. “Bank CEO Incentives and the Credit Crisis” March 2010.

American Federation of Labor and Congress of Industrial Organizations, Letter to the Federal Reserve on Sound Incentive Compensation Policies, November 2009.

The Aspen Institute. “Long-Term Value Creation: Guiding Principles for Corporations and Investors.”

“A Fair and Substantial Contribution by the Financial Sector” Interim Report for the G20 prepared by the staff of the International Monetary Fund, to be presented at June G20 summit.


Regulators, business leaders and faculty members interested in attending future symposia can contact: leadershipethics (AT) gsb (DOT) columbia (DOT) edu.

 

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