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Wall Street

Blocking Wall Street’s Revolving Door

Research & Commentary
April 29, 2016

by Brandon Rees

At a surreal meeting in Bermuda, the AFL-CIO convinced 40 percent of Lazard shareholders to support a ban on golden parachutes for bank executives who go to work for financial regulators.  

Lazard's annual meeting took place at the Elbow Beach Hotel in Bermuda.

Lazard’s annual meeting took place at the Elbow Beach Hotel in Bermuda.

The Wall Street investment bank Lazard held its annual shareholder meeting April 19 at Bermuda’s luxurious Elbow Beach Hotel. Bermuda is known for its beautiful sandy beaches and, less flatteringly, as an offshore tax haven. Headquartered in New York City, Lazard is incorporated in Bermuda.

Like a tax shelter that lacks economic substance, Lazard’s shareholder meeting seemed empty of meaningful content. There was no discussion of the company’s performance, as is customary at other shareholder meetings. I felt like the only attendee who was not affiliated with the company.

Lazard’s corporate secretary ran through the entire meeting agenda in less than five minutes. Lazard’s board of directors and a number of other executives attended the meeting but did not speak. My job: to present an AFL-CIO-sponsored shareholder proposal. as required by the U.S. Securities and Exchange Commission’s regulations.

The AFL-CIO’s shareholder proposal asked Lazard to ban the payment of unvested equity to senior executives if they enter into government service. Known as “government service golden parachutes,” this unvested equity would normally be forfeited after an executive’s voluntary resignation.

[pullquote]Paying execs to enter government service fosters a revolving door between Wall Street and regulators.[/pullquote]

Paying executives to enter government service fosters a “revolving door” between Wall Street and financial regulators. Government service certainly rates as commendable, but financial regulators should be free from any perceived bias due to extra compensation received from their previous employers.

As Sheila Bair, the former chair of the Federal Deposit Insurance Corporation, has put it, “Only in the Wonderland of Wall Street logic could one argue that this looks like anything other than a bribe…We want people entering public service because they want to serve the public. Frankly, if they need a [golden parachute], I’d rather they stay away.”

At the annual meeting, I also delivered a petition signed by more than 44,000 individuals that called on Lazard to stop this questionable pay practice. The petition was organized by the AFL-CIO, Public Citizen, and Americans for Financial Reform and targeted to Lazard, Morgan Stanley, JPMorgan, Citigroup, and Goldman Sachs. The AFL-CIO has shareholder proposals to ban government service golden parachutes pending at all these firms.

The Lazard board of director’s opposition statement to the AFL-CIO’s shareholder proposal stated that “Lazard fosters a strong culture of public service.” But when it comes to paying income taxes in the United States, the company seems to be less civic-minded. Lazard incorporated itself in Bermuda in 2004.

In the end, more than 40 percent of Lazard’s shareholders who voted on our proposal supported it. It remains to be seen whether Lazard’s board of directors will respond to this strong level of shareholder support.

[pullquote]Next up is a vote on a similar resolution to ban government service golden parachutes at Goldman Sachs.[/pullquote]

We’re now gearing up for a vote on a similar resolution at the Goldman Sachs annual meeting on May 20 in Jersey City, New Jersey. The beaches there won’t as nice as Bermuda’s this time of year, but I expect to have many more allies on hand.

Meanwhile, members of Congress have introduced legislation that would put an end to government service golden parachutes. Sen. Tammy Baldwin (D-Wis.) and Rep. Elijah Cummings (D-Md.) recently introduced a bill, the Financial Services Conflict of Interest Act, that would stop finance executives from receiving payments for going to work in government.

Federal financial regulators also recently released a proposal on Wall Street pay that could help address this government service golden parachute problem. If approved, the new regulation would bar the accelerated vesting of equity compensation that is required to be deferred, which is the form many of these golden parachutes take.

As my colleague Heather Slavkin Corzo, director of the office of investment at the AFL-CIO, told Bloomberg, “It’s good to see that regulators are concerned. If somebody’s just given you a big wad of money they weren’t required to give you, it might give you a warm, fuzzy feeling about them.”

We should be able to feel confident that our financial regulators are working for the public good, not narrow Wall Street interests.

Brandon Rees is the deputy director of the AFL-CIO’s Office of Investment. 

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