On Wednesday the New York chapter of National Investor Relations Institute in partnership with the Robert Zicklin Center for Corporate Integrity at Baruch College organized a great event for investor relations professionals – a panel dedicated to the new Dodd-Frank bill. Since the bill is 2,300-plus page monster, the panel focused on just two key issues most relevant to the investor relations professionals: executive compensation, including say-on-pay, and proxy access. The panel will be posted online so there is no need to repeat what was being said but what is interesting and very much troublesome in my mind is the vague language of the regulation.
The panelists repeatedly said that the Dodd—Frank bill does not provide clear guidelines for any of these issues. In other words, it makes a promise but leaves the way to achieve this promise open for interpretation. Indeed, it allows executive branches of government such as SEC, CFPA and others decide how they want to govern the financial markets and define the actual measures necessary to achieve the legislative promise. The reason given for such ambiguity was the fact that financial markets are too complex and legislators do not know and do not understand all the nuances of these markets to identify ways to control them.
Although it might sound logical, the argument does not stand up to the scrutiny. First of all, running any aspect of a country is complex – education is no easier than financial markets. The same is true for defense or environmental protection. Second, legislators have a lot of professionals available to them through task-forces, consultancies and similar. After all, they can always invite professionals to testify and explain – they have time and resources to do it right and in a transparent manner. What is happening now is empowering the executive branch make decisions in their own interest without any transparency or debate (if they choose so).
Similar situation happened in Russia in early 1990s. When USSR collapsed, the new laws were written in a very vague manner – it was believed that the new democratic market system is too complex to be defined by rigid laws. In addition, it was believed that legislators who grew up in a socialist country were not qualified to legislate market economy – pretty similar arguments, aren’t they? As a result, the vague legislation empowered the executive branch to define the specific provisions of the law.
The end result – Russia today is one of the most corrupt countries in the world. The executive commissions are enabled to create the actual specifics of laws, define what they mean, and enforce them – an ideal environment for manipulation! Nothing can be accomplished in Russia without a bribe today – one has to pay every bureaucrat from tiny town halls to Kremlin.
Instead, would not it be better to stick to the actual separation of branches of government? Legislators should create the specific and actionable laws based on proper research and deliberations. Judicial branch should interpret these laws and help settle the arguments and ambiguities. Executive branch, in its turn, should be limited to just executing the laws – no more, no less!