The Shadow Chancellor's Notebook by Orlando Plumbe

Growing Hedge-Fund Clout

Link: WSJ.com - Executives' Ouster Shows Growing Hedge-Fund Clout.

The turmoil in the executive suite not only paves the way for a possible bankruptcy filing by the electricity-generation company, but also spotlights the growing clout of hedge funds to force changes in corporate strategy. Earlier this week, for example, hedge-fund investor Carl Icahn, who has been pushing Time Warner Inc. to spin off its cable-TV group and to undertake larger share buybacks, said he would field his own slate of directors. Hedge funds -- lightly regulated private investment partnerships that cater largely to institutions and wealthy people -- are among the biggest holders of Calpine's debt. Some have taken positions that could push the company into a filing under Chapter 11 of the U.S. Bankruptcy Code.

Hedge Funds for the Masses

Frpom the NYT, Hedge Funds are getting a nincreasing amount of their money from John Q. Public, in the form of pension fund investment in them.  Pension Officers Putting Billions Into Hedge Funds - New York Times.

Faced with growing numbers of retirees, pension plans are pouring billions into hedge funds, the secretive and lightly regulated investment partnerships that once managed money only for wealthy individuals and elite institutions.

The plans and other large institutions are expected to invest as much as $300 billion in hedge funds by 2008, up from just $5 billion a decade ago, according to a study by the Bank of New York and Casey Quirk & Associates, a consulting firm. Pension funds account for roughly 40 percent of all institutional money. This month, the investment council that oversees the New Jersey state employees pension fund said that the fund would invest $600 million in hedge funds, less than 1 percent of its assets, over the next several months.

Katrina and SOX

From The University of Chicago Law School Faculty Blog:

Crudely, Enron = Katrina. Here too we see primarily a federal response. Within months of the Enron bankruptcy, Congress passed the Sarbanes-Oxley Act of 2002, which federalized many important corporate law issues that had heretofore been governed by the states. For example, section 404 of the Act mandates comprehensive (read: expensive and not sure to work) internal controls requirements without regard to differences in size and scope across firms and without regard to the substantial case law in states such as Delaware on the subject. (On the former part, one might have expected a state-law solution to internal controls to be more flexible to the needs of various firms through an enabling default rule approach as opposed to the federal, command and control approach.) A similar intrusion into state law can be seen on a range of issues from board composition to executive liability for financial reports.

WSJ.com - The Follies of Regulation

Link: WSJ.com - The Follies of Regulation.

Addressing the question of exorbitant executive compensation -- which has become the focal point of the American public's concern about corporate governance -- Mr. Cox last week raised the venerable battle standard of the SEC: full disclosure. That is too bad; the regulatory philosophy of full disclosure has been tried for over 70 years and been found sadly wanting as a way to protect shareholders from corporate and financial abuses.

WSJ.com - Judge Questions Costs in Oracle Suit

Link: WSJ.com - Judge Questions Costs in Oracle Suit.

Mr. Ellison and lawyers representing Oracle shareholders had agreed that Mr. Ellison, without admitting wrongdoing for the 2001 stock sale, would donate $100 million over five years to charity. San Mateo Superior Court Judge John G. Schwartz seemed favorably disposed to the general outlines of the deal, but said he wanted to hear more testimony about why Oracle shareholders should bear the cost of $22.5 million in legal fees that were included in the proposed settlement, according to one account of the brief proceeding. Judge Schwartz directed the parties to return to his courtroom Nov. 15

Once a Lone Wolf, Carl Icahn Goes Hedge-Fund Route

But i bet still a wolf. Link: WSJ.com - Once a Lone Wolf, Carl Icahn Goes Hedge-Fund Route.

In forming a hedge fund, Mr. Icahn, a man sometimes reviled in boardrooms as an interloper, was able to take advantage of investors' desire for better management. "Hedge funds are a huge force for corporate governance," he says. "To go after big companies you need capital," he notes, because "you can't get management worried about you unless they know you aren't bluffing."

Pendulum Swinginf back--A Scholalrly Assessment of SOX

Link: Yale Law Journal | R. Romano, The Sarbanes-Oxley Act and the Making of Quack Corporate Governance.

The empirical literature provides a metric for evaluating whether specific provisions can be most accurately characterized as efficacious reforms or as quack corporate governance. The learning of the literature, much of which was available when Congress was debating the bill, is that SOX’s corporate governance provisions were ill conceived.

Big Paychecks Are Exhibit A at C.E.O. Trials - New York Times

For some time I thought a study between the rise in executive compensation, and the rise in punitive damage awards would be worth whil;e. The correlation between executive pay and convictions suggests that there is a correlation. Link: Big Paychecks Are Exhibit A at C.E.O. Trials - New York Times.

But in the new millennium, as the story has moved from the boardrooms to the courtrooms, they have portrayed themselves as having been fumblers, sloppy with their paperwork and unaware of crimes in their midst - yet still deserving of their gargantuan paychecks.

And, for the most part, juries are not buying it.

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There is, of course, a lesson in this. Corporate executives who want the big pay had better turn in spectacular, precision performance, legal analysts say. Otherwise, if a scandal blows up inside the company, their own compensation may prove their undoing.

"Any highly paid corporate executive had better move swiftly to make sure they have a firm grasp on the finances of their company," Mr. Mintz said. "Because at the end of the day, these cases go to show that they are going to be held to a very high standard that may come back to haunt them."

Bristol-Myers Reaches $300 Million Settlement - New York Times

Link: Bristol-Myers Reaches $300 Million Settlement - New York Times.

NEWARK (AP) -- Bristol-Myers Squibb Co. agreed to pay $300 million in a deal to defer federal prosecution of a conspiracy charge stemming from an accounting scandal, the U.S. Attorney's Office in New Jersey said Wednesday. Two of its former executives also were indicted for their alleged roles in the same scandal.

MassMutual Board Fired CEO On Finding 'Willful Malfeasance'

A Board takes action. Link: WSJ.com - MassMutual Board Fired CEO On Finding 'Willful Malfeasance'.

The abrupt notice of termination given last week to the head of MassMutual Financial Group, one of the nation's largest financial companies, came after a board investigation concluded he had engaged in an improper pattern of self-dealing and abuse of power, according to people familiar with the probe. The probe made several allegations against former Chairman and Chief Executive Robert J. O'Connell, among them that he inflated the value of a special retirement account by tens of millions of dollars, bought a company-owned condominium at a below-market price and interfered in efforts to discipline his son and son-in-law, who worked at MassMutual, said people familiar with the probe.