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Part 3

Public Policy & Section 953

While, on its face, this section may seem to add a noble measure of transparency to a corporate world filled with executive excess and greed, in actuality, this measure is misplaced and ineffective.  In order for the enhanced these disclosure requirements to have any effect, outraged shareholders must be able to change the EC amounts.  Unfortunately, most shareholder votes are swallowed up by the institutional investors who dominate the majority.  Inherently, institutional investors are not likely to oppose issuing management over EC.  Id.  If company “performance” is sub-par, it is that performance itself, not the CEO’s compensation which will initiate the need for a change in management.  Furthermore, institutional investors are more apt to understand that high compensation for a CEO paired with a drop in “performance” and thereby, share-values, may be more attributable to systemic issues throughout the market that have nothing to do with the effectiveness or competency of the highly-compensated executive at the helm.  

The drafters fail to recognize that any shareholder who is displeased with performance or EC already has a perfect outlet to voice their opinion to management: Sell.  The democratization tactics of section 953 are flawed because the drafters failed to account for this powerful, built-in voting mechanism. If market participants are pleased with publicly-available performance and EC data, they will buy shares.  If not, they will sell their shares (or not buy at all) and invest those funds elsewhere.  This concept is analogous to one of the core tenets of federalist democratic theory: when the people are not pleased with leadership, but lack numerical majority to effect change in that leadership, they can always “vote with their feet”.  While clearer disclosure could encourage more market participation, EC data does not drive investments.  However, if the disclosure tactics of section 953 were applied to ratings agencies or issuers’ ambient risk assessments, “Wall Street Reform and Consumer Protection” might be possible.