August 5, 2024 • 10 mins
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Bryce Tingle, Business Law Professor at the University of Calgary, talks about the importance for companies to have rules, practices, and accountability to be effective. All in his book: Hard Lessons in Corporate Governance
Hosts: Carol Massar and Tim Stenovec. Producer: Paul Brennan and Sebastian Escobar
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:08):
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.
Speaker 3 (00:27):
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.
Speaker 1 (00:42):
Got through it.
Speaker 3 (00:43):
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
(01:03):
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.
Speaker 1 (01:16):
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.
Speaker 3 (01:29):
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?
Speaker 4 (01:48):
Thanks, thank you very much, Cale and Till. I'm delighted
to be here.
Speaker 3 (01:51):
So I just want to start with the failure of
corporate governance here in the US. Where do you see
examples of it failing?
Speaker 4 (01:59):
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.
(02:22):
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
(02:43):
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
(03:04):
growing reluctant as part of American businesses to join the
public markets.
Speaker 1 (03:09):
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,
(03:30):
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?
Speaker 4 (03:42):
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
(04:03):
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.
Speaker 3 (04:24):
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.
Speaker 1 (04:35):
If you have a chapter devoted to this.
Speaker 3 (04:38):
For executives of US companies, what is the relationship between
governance and executive compensation?
Speaker 4 (04:48):
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
(05:09):
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
(05:29):
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.
Speaker 3 (05:44):
The salaries might have been reduced or have stayed stable,
but total compensation has gone through the roof.
Speaker 4 (05:53):
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
(06:13):
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
(06:34):
experimenting with the corporate governance inly nineties is when executive
pay just explodes.
Speaker 1 (06:42):
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.
Speaker 3 (06:55):
Are you laughing? He's laughing.
Speaker 1 (06:57):
Good corporate governance, which we've all been talking about, kind
of a real life succession drama playing out.
Speaker 4 (07:04):
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
(07:25):
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
(07:46):
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
(08:07):
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
(08:29):
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
(08:51):
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.
Speaker 3 (09:11):
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.
Speaker 4 (09:19):
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
(09:42):
personalities leading the company.
Speaker 3 (09:45):
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.
Speaker 1 (09:58):
It's a really timey topic. We kind of talk about
it a lot, corporate governance.
Speaker 2 (10:02):
This is the Bloomberg Business Week podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live weekday
afternoons from two to five pm Eastern on Bloomberg dot com,
the iHeartRadio app tune In, and the Bloomberg Business app.
You can also watch us live every weekday on YouTube
and always on the Bloomberg terminal
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:08):
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.
Speaker 3 (00:27):
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.
Speaker 1 (00:42):
Got through it.
Speaker 3 (00:43):
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
(01:03):
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.
Speaker 1 (01:16):
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.
Speaker 3 (01:29):
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?
Speaker 4 (01:48):
Thanks, thank you very much, Cale and Till. I'm delighted
to be here.
Speaker 3 (01:51):
So I just want to start with the failure of
corporate governance here in the US. Where do you see
examples of it failing?
Speaker 4 (01:59):
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.
(02:22):
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
(02:43):
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
(03:04):
growing reluctant as part of American businesses to join the
public markets.
Speaker 1 (03:09):
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,
(03:30):
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?
Speaker 4 (03:42):
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
(04:03):
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.
Speaker 3 (04:24):
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.
Speaker 1 (04:35):
If you have a chapter devoted to this.
Speaker 3 (04:38):
For executives of US companies, what is the relationship between
governance and executive compensation?
Speaker 4 (04:48):
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
(05:09):
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
(05:29):
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.
Speaker 3 (05:44):
The salaries might have been reduced or have stayed stable,
but total compensation has gone through the roof.
Speaker 4 (05:53):
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
(06:13):
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
(06:34):
experimenting with the corporate governance inly nineties is when executive
pay just explodes.
Speaker 1 (06:42):
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.
Speaker 3 (06:55):
Are you laughing? He's laughing.
Speaker 1 (06:57):
Good corporate governance, which we've all been talking about, kind
of a real life succession drama playing out.
Speaker 4 (07:04):
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
(07:25):
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
(07:46):
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
(08:07):
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
(08:29):
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
(08:51):
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.
Speaker 3 (09:11):
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.
Speaker 4 (09:19):
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
(09:42):
personalities leading the company.
Speaker 3 (09:45):
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.
Speaker 1 (09:58):
It's a really timey topic. We kind of talk about
it a lot, corporate governance.
Speaker 2 (10:02):
This is the Bloomberg Business Week podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live weekday
afternoons from two to five pm Eastern on Bloomberg dot com,
the iHeartRadio app tune In, and the Bloomberg Business app.
You can also watch us live every weekday on YouTube
and always on the Bloomberg terminal
Hosts And Creators
Tim Stenovec
Carol Massar
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