Disclosure

Would Paulson’s CBRA Have Fangs?

Although anything coming from the Bush Administration has to be regarded with suspicion, one aspect of the Treasury Secretary Henry Paulson’s plan to revamp the regulation of financial institutions is intriguing. As part of the replacement of the current alphabet soup of agencies with a new minestrone, Paulson called for the creation of a single entity to oversee consumer protection issues relating to all regulated financial institutions. Although the Paulson blueprint often refers to this as the “business conduct regulator,” the formal proposed name is the Conduct of Business Regulatory Agency, or CBRA for short.

The new agency would combine selected functions now handled (or neglected) by entities such as the Securities and Exchange Commission and the various bank regulators. Other SEC functions—presumably including oversight of the securities of non-financial companies—would apparently reside in a new agency formed by the merger of the SEC and the Commodity Futures Trading Commission.

CBRA’s proposed mission is described (p.19) as follows:

Business conduct regulation in this context includes key aspects of consumer protection such as disclosures, business practices, and chartering and licensing of certain types of financial firms. One agency responsible for all financial products should bring greater consistency to areas of business conduct regulation where overlapping requirements currently exist. The business conduct regulator’s chartering and licensing function should be different than the prudential regulator’s financial oversight responsibilities. More specifically, the focus of the business conduct regulator should be on providing appropriate standards for firms to be able to enter the financial services industry and sell their products and services to customers… CBRA’s main areas of authority would include disclosure issues related to policy forms, unfair trade practices, and claims handling procedures.

It’s difficult to know how seriously to take this. Is Paulson suggesting that CBRA would be able to establish strict consumer protection standards before a company is allowed to set up shop anywhere in the financial services marketplace? If so, then bring it on.

Also appealing (from a researcher’s perspective) is the emphasis on disclosure, especially relating to information apart from data that Paulson puts under the purview of the “corporate finance regulator.” Today, the disclosure needs of investors are too often put ahead of the disclosure needs of consumers, workers and the general public.

Paulson’s blueprint may go nowhere, but if it does, let’s hope that his CBRA would really have fangs.

State Government’s Selective Disclosure

In November, the Corporate Research Project of Good Jobs First released a report called The State of State Disclosure, which surveyed the quantity and quality of state government transparency relating to subsidies, procurement contracts and lobbying.

In it, we mentioned that numerous states have been adopting new disclosure programs relating to public spending. These initiatives provide useful information but often fail to name names relating to subsidies and contracts. I have just completed a quick update of the transparency wave and found that the newest disclosure sites also have deficiencies.

Kansas’s KanView allows for searching of the names of vendors selling goods and services to any state agency. It covers the past two fiscal years. For now, though, the new site is less complete than the existing online database of the Kansas Department of Administration, which has a deeper archive and includes the full texts of contract awards.

While KanView allows for vendor searches throughout the state government, two other recent arrivals are more limiting. South Carolina’s Spending Transparency site simply provides total annual expenditures by agency. You can also view each agency’s monthly spending during the past year and drill down for details. This is more cumbersome than the existing state procurement website, which allows for general vendor-name searches.

Oklahoma’s new Open Books site also requires you to choose a specific agency or government function in order to view a list of vendors. The state already had an online list of recipients of recent contract awards as well as a list of statewide contracts, though the latter is not easily searchable by vendor name.

In short, it is unclear that new spending transparency measures provide much in the way of additional information, especially in the ability to see which companies are making the most money out of their dealings with state governments. This limitation may be a reflection of the forces that are pushing for such transparency. They are led by the likes of Grover Norquist, head of Americans for Tax Reform (whose website, by the way, has the most complete overview of legislative efforts on spending transparency).

Yes, the same Grover Norquist who was on the Daily Show the other night promoting his new book Leave Us Alone: Getting the Government’s Hands Off Our Money, Our Guns, Our Lives. For Norquist, transparency is apparently a tool in the effort to shrink government to its bare minimum. His priority seems to be highlighting the true extent of social spending rather than fully exposing those corporations that are milking the public sector through lucrative contracts.

The news is more encouraging on the subsidy disclosure front, where progressive groups are taking the lead and have brought about new transparency measures in states such as New Jersey and Wisconsin.

Note: this item is also being posted on the new Good Jobs First blog CLAWBACK.

Congress Scrutinizes Compensation of Financiers and Contractors

Through war and peace, recession and expansion, bear market and bull—there is one constant in the American economy: Large corporations will pay their top executives ridiculous amounts of money. As the country focuses more on a weakening economy, some members of Congress are raising questions about the eternal boom in CEO compensation.

Today, the House Committee on Oversight and Government Reform, chaired by Rep. Henry Waxman of California, issued a preliminary report on the research its staff has done in preparation for a hearing tomorrow on the compensation and retirement packages awarded in recent years to the chief executives of three companies implicated in the mortgage crisis: Angelo Mozilo of Countrywide Financial Corporation, E. Stanley O’Neal of Merrill Lynch, and Charles Prince of Citigroup. (O’Neal and Prince no longer hold those jobs.)

In addition to looking at SEC filings, the committee obtained thousands of pages of documents directly from the companies, including board minutes and internal e-mails—some of which the committee has put online.

The report raises a series of pointed questions, no doubt foreshadowing tomorrow’s interrogatories, particularly about Mozilo’s personal stock sales last year, the exceptionally generous “change in control” provision in his employment contract, and the lucrative way in which his cash bonuses have been calculated. Mozilo is estimated to have received a total of about $250 million in pay over the past decade. Uncomfortable questions also appear to be in store for O’Neal and Prince about discrepancies between their personal compensation and the fortunes of their firms amid the mortgage meltdown.

Meanwhile, the Oversight Committee’s Subcommittee on Government Management, Organization and Procurement is considering a slate of contracting reforms, one of which would require all companies—whether publicly traded or privately held—that receive more than 80 percent of their revenue from doing business with Uncle Sam (and get at least $5 million in annual revenue from such contracts) to submit data on their top executives’ compensation for inclusion in a public database. The disclosure bill, H.R. 3928, was introduced by Rep. Christopher Murphy (D-Conn.) in response to the controversy surrounding contracts held by the mercenary supplier Blackwater.

Although the bill would cover only a limited number of larger companies that are heavily dependent on government business, industry representatives testifying at a hearing last week strongly opposed the measure. Their dubious argument, echoed by a Bush Administration official, was that the disclosure would have a “chilling effect” on the willingness of companies to compete for contracts. The idea that companies receiving more than three-quarters of their revenue from the federal government would walk away from that market is laughable.

For a good assessment of the disclosure bill and the other contractor reform measures being considered by the subcommittee, see the prepared testimony submitted by Scott Amey, General Counsel of the Project On Government Oversight.