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Mark Cuban nails it

On September 15, 2008, in Obscurity, by Administrator
1

This is exactly my frustration with the current market crisis we are currently going through.  Those that facilitated the crisis with irresponsible risky behavior are free of any sort of financial risk.  It is all reward, no risk at the leadership level and this introduces what I believe are unacceptable consequences.  Take a look at the list of multi-millionaires created through management failures.  Required reading here.

Which is exactly why we need to re-establish a link between risk and reward in public companies. The first step should be the following law:

If the government must step in and provide any sort of financing or guarantees for any part of a public company’s business, then all officers and directors lose all rights to severance pay and all outstanding vested or unvested options or warrants immediately become canceled. In the event the CEO of such corporation is not fired, but instead chooses to step down voluntarily, then the last 12 months of earnings is considered to be an interest free loan which the CEO must pay back over no more than a 10 year period.

 

1 Response » to “Mark Cuban nails it”

  1. Bob Stratton says:

    I think that shareholders are certainly capable of forcing such conditions on most firms. The real issue is with a fundamental assumption that’s even implicit in your proposed solution.

    “If the government must step in” presupposes a number of things that aren’t at all straightforwardly obvious from either a business, law, or economic perspective.

    A) that the government has the Constitutional authority to do so in the first place

    B) that rent-seeking behavior isn’t behind whatever mitigation strategy the government selects

    C) that the government is capable of mitigating some perceived problem without further distorting the market.

    For example, anyone actually wondering how the mortgage lending crisis happened has only to read the outstanding summary of events penned by Sheldon Richman at the Foundation for Economic Education here: http://www.fee.org/in_brief/default.asp?id=2336

    He says it better than I ever could:

    “The key to understanding the saga of Fannie Mae and Freddie Mac — the newly nationalized twin government-sponsored enterprises (GSEs) that dominate home financing — is this:

    They were created — intentionally — to distort the housing and mortgage markets. That is, government planners were not content to let voluntary exchange and spontaneous market forces configure those industries unmolested. So — holding the taxpayers hostage — they intervened.”

    If you really want insight into how we have landed in these messes, and seem to be stepping on the accelerator even as populists claim to be “doing something,” do read that article.

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