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Courting Compensation Disaster?

Delaware Chief Justice expects suits against directors to allege missteps on executive pay. Also: Canada's CFO cronyism.
Lisa YoonJanuary 7, 2003

Quite a few shareholders might soon be placing votes on executive compensation — with the help of their lawyers.

In a roundtable discussion called “What’s Wrong With Executive Compensation?” recounted in this month’s Harvard Business Review, Delaware Supreme Court Chief Justice E. Norman Veasey said that corporate directors could be held legally liable for exercising bad judgment in setting executive-pay packages.

“If directors claim to be independent [and are] disingenuous or dishonest about it,” said Veasey, “it seems to me that the courts in some circumstances could treat their behavior as a breach of the fiduciary duty of good faith.”

The judge’s remark is significant in a couple of ways: On the one hand, it suggests that that courts might be more open to shareholder grievances over executive compensation than they have been in the past.

Second, and perhaps more importantly, that glimpse into the future comes courtesy of Veasey, whose state of jurisdiction is where more than half of all publicly traded U.S. corporations are incorporated.

Veasey was among 12 participants in the roundtable conducted by HBR and University of Delaware’s Center for Corporate Governance. The participants included Jamie Heard, CEO of Institutional Shareholder Services; Edgar S. Woolard Jr., former CEO of DuPont; and Joe Bachelder, a compensation lawyer.

Oh, Canada

Job market too competitive for you? Head for the hills. Or maybe just Canada.

According to a report in Canada’s Globe and Mail, the buddy system is big among Canadian chief executives, especially among CEOs hired to help turn struggling companies around. And among newly appointed turnaround CEOs, the blast from the past they most turn to for their senior teams is the CFO.

And under the right circumstances, the practice is not altogether frowned upon. Why? Two reasons: One is that the CFO talent pool is relatively shallow in Canada, so hiring one that the new boss already knows is often an easy sell to directors.

Another reason is that when companies are in a financial scrape, CEOs feel they need a top finance officer they know, trust, and feel comfortable with.

“The chief financial officer is like your alter ego,” Henri-Paul Rousseau told the Globe and Mail. Rousseau, the new chief of Canada’s massive but struggling pension-fund manager Caisse de dépôt et placement du Québec, brought in Ghislain Parent from the International Monetary Fund to be his VP of finance and administration. “There is so much you need to share.”