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This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Well, the market in the software then expected. Peril's report certainly a top story today. So this other one got a little lost in the shuffle. JP Morgan, Chase CEO talking about this one, this was you know, you wake up this morning before and I mean this is when I woke up and this was like a headline this morning.
Got through it.
JP Morgan Chase CEO. Jamie Diamond said the next US president must work to bring together a quote deeply divided nation as domestic and geopolitical issues mount, and said the business world should have representation in the cabin Here's what he wrote. The private sector has huge wells of expertise and produces eighty five percent of our nation's jobs. This was in an opinion piece published early this morning in The Washington Post. It should have a seat at the table.
Yet in recent years, government leaders have often failed to engage those in industry. A president should put the most talented people, including those from business and the opposite party, into their cabinet.
So a quote seat at the table Jamie Diamond is talking about is representation, having those who are in the private sector helping to share policy, giving those in business a say in government. At its core, this is really governance.
It's an important concept not just in politics, but also in business, and that's corporate governance. Bryce Tingle is an expert in it. He's a business law professor at the University of Calgary and he's got a new book out. It's called Hard Lessons in Corporate Governments. Professor, good to have you with us this afternoon. How are you good?
Thanks, thank you very much, Cale and Till. I'm delighted to be here.
So I just want to start with the failure of corporate governance here in the US. Where do you see examples of it failing?
It fails in two different ways. One is, for the last thirty years, we've really changed the way companies are governed, and as I detail length in the book, we've studied the outcomes and they either don't the changes we made either don't make any difference the way corporations work, or they make things a little worse. And you can see that.
You know, we really started experimenting with corporate governance in the early nineties, and you can see that in things like dot com collapse and some of the bad behavior that led to the two thousand and eight financial crisis, and stock option back dating and executive pay. So even if you're not really familiar with the empirical literature, at this point, it's becoming pretty obvious that what we were
doing isn't working. But the second way that our governance fails is we've made it really unpleasant to be a company that subject to our corporate governance rules. And those rules live in the public mark markets, and so we have seen over the last twenty some odd years of growing reluctant as part of American businesses to join the public markets.
So, you know, going into it's funny, I was thinking about we talk about public markets versus private and I do wonder about how that plays into it, because you know, when you've got folks like US governing companies on a quarterly basis, there are certain metrics that we measure them by, right, and certainly investors do, and I do wonder how that kind of gets in the way of maybe doing better when it comes to corporate governance. So have public markets failed us?
I think public markets are failing us. I don't think i'd use the past tense. They're failing us because we all depend on new innovative businesses coming to the public markets and making themselves available for the average investor to invest in, and exposing their business in the way that your show permits. You get a lot more transparency in the public markets. And so if the public markets aren't doing the job of attracting new businesses into them, they're
beginning to fail. They're about half the size they were twenty some odd years ago.
Let's talk compensation and executive compensation here, because let's be honest, I think many people would argue it's gotten a little out of hand in terms of pay packages.
If you have a chapter devoted to this.
For executives of US companies, what is the relationship between governance and executive compensation?
That's an excellent question. In some ways, compensation is what got us started in making all the changes we have over the last thirty years. The notion behind modern governance is that we're trying to control the behavior of managers.
They're in a situation where they have custody of the shareholder's property, that is, the assets of the business, and we want to prevent them from misusing them or dealing with them in a self interested way, and the most obvious way for them to do that is obviously with executive compensation, paying themselves too much, and so right from the early day of the modern corporate governance regime in the early nineties, we saw sustained efforts on the parts
of multiple parties, including US Congress, to a control executive pay. And I think at this point we can all say that everything we've done is a failure.
The salaries might have been reduced or have stayed stable, but total compensation has gone through the roof.
Yeah, it now takes more than twice as much of the profits of a company to pay its most senior executives than it did back in nineteen ninety two. So yeah, it has been a failure. The thing I point out in my book is that the very things that we tried as part of our corporate governance reforms actually were the one things that led to this huge increase in
executive pay. The truth is executive pay had stayed pretty flat from the end of the Second World War into the late nineteen seventies, and then it rose only very slightly in the nineteen eighties. The time when we start experimenting with the corporate governance inly nineties is when executive pay just explodes.
You know, we were thinking about a couple of companies, to be quite honest with you, when Tim and I were prepping for this price and like Tesla, good corporate governance, boeing, good corporate government.
Are you laughing? He's laughing.
Good corporate governance, which we've all been talking about, kind of a real life succession drama playing out.
Yeah, well, let's stay. Let's stay Tesla because Elon Musk is always the most entertaining. So you can have a couple of views about that Tesla pay package. I mean, of course, it seems like it's absurdly too big, But the fifty eight billion dollars maybe fifty two billion dollars if you parse the numbers carefully. The the Delaware court threw it out. And what's interesting is the total irrelevance
of the reason the Delaware court threw it out. So the Delaware court threw it out because it said Elon Musk has got too much power, and the independent directors on the board of Tesla weren't really independent and they didn't disclose to the shareholders at the time the shareholders voted back in twenty eighteen that they weren't as independent as maybe the shareholders. That, in a nutshell, is what
the ort held. That strikes lots of people, including the shareholders who voted again to award Elon his pay package just a month ago. Strikes a lot of observers. Is dumb and kind of irrelevant. It was clear in twenty eighteen that Elon Musk was the driving force behind Tesla, and the size of his pay package, the terms on which it was made available to him was well reported by the financial press. It was fairly and accurately disclosed,
and the materials that were sent to the shareholders. It would have been no trouble for the shareholders to evaluate its impact in terms of dilution, and they voted in favor of it. It's safe to say that no shareholder cast their vote under a mistaken belief about the independence of Elon's board. Yet that turned out to be crucial for the Delaware decision, and it's a sign of the way in which our beliefs about corporate governance have begun increasingly to diverge from reality.
We only have twenty seconds left. But what about Fox Corp? News Corp. Because there's this great New York Times story last week about the secret battle for the future of the Murdoch Empire.
Very briefly, well, it's a great question. Now, I'm not trying to judge in twenty seconds, but it is a sign that often the most important parts of corporate governance aren't about who's the independent director or whether or not the shareholders have majority voting. It's about the character and personalities leading the company.
All right, we're gonna have to leave it there, Thanks so much for joining us. That's Professor Bryce Tingle. His new book is called Hard Lessons in Corporate Governance. He's business law professor at the University of Calgary. Joining us from Calgary.
It's a really timey topic. We kind of talk about it a lot, corporate governance.
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