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Movie Mom

Testimony about overpaid CEOs and subprime mortgages

posted by Nell Minow

Update for anyone who wants to see my testimony: On the CSPAN website look for the Waxman hearing on CEO compensation and click on Panel 1. I’m about halfway through. My presentation is under five minutes but I also got most of the questions that follow. Here is my favorite of the news stories about the hearing (quote from me at the end). And here is the clip from CNBC and some commentary from me on the “Audit Trail” blog.
Now — back to movies!

  • Brian C

    Re: “Testimoney” of the three tenors of the subprime opera:
    Like the above pun on testimony?
    Thank you for your recent efforts to address excessive CEO pay. I have been an avid reader of market news and a stock investor since the late 1980’s. When I see the ratio of CEO pay going up drastically relative to that of their employees, I think of corporate boards and CEO’s as behaving incestuously: inappropriate, dysfunctional, unethical and illegal behaviors that harm the well-being of the larger group of people of which they are members. I also see nothing stopping it. What actions can I take as a shareholder or citizen? Could you refer people to any resources on this? I know I can send in my shareholder votes, but it doesn’t seem to be enough.
    Regarding shareholder perspectives, since you must be well-read on the matter, I’d like to suggest a book to you and others who read this blog. It is called “A Mathematician Plays The Stockmarket” by Temple University Mathematics Professor John Allen Paulos. Paulos writes about media employees’ and average citizens’ insufficient understanding of mathematics and describes what it takes to get them to understand the significance of numbers better. For example, most people do not clearly understand the magnitude of difference between billions and millions. He shows how; by expressing it in terms of the number of Mercedes Benzes those X billions and X millions could buy, the value of those billions and millions becomes much more concrete. Many people cannot relate to the idea of CEO’s having billions in assets and making millions in salary or stock options.
    In “A Mathematician Plays The Stockmarket”, Paulos humorously yet scarily writes about how he continued to invest more and more in Enron shares because his emotional response to seeing the stock price go down was “I’m getting a bargain!”, so he bought more shares!
    This was before the public knew how severe the company’s troubles were. He writes in a self-effacing way as he explains how, despite his academic and personal knowledge of statistics, probability and investor psychology, he lost (and gained) money investing in stocks. I am certain he would support you in your corporate governance efforts. His book is instructive in describing what makes stock values go up and down. He does not pretend to fully understand the mechanics of it all, but does illuminate the process with humor, intellect and wit.
    He also wrote “Beyond Numeracy” and “A Mathematician Reads The Newspapers”.
    Have you read “A Mathematician Plays The Stockmarket”?

  • Nell Minow

    I read his first book, but not the others. The best advice I know about investing comes from Adam Smith: “The stock does not know you own it.” It’s easy to say that you should not get emotional about investing, but hard to do.
    As for what individuals can do — vote “no” on outrageous pay proposals and “yes” on shareholder proposals to limit pay. Refuse to vote for compensation committee members who agree to abusive pay. The rules are changing and the possibility that investors will be able to throw out directors is within reach. As your broker and mutual fund and retirement trustee for their proxy voting policies and push them to vote more aggressively. Check with other investors at Motley Fool and the Yahoo message boards. And write to Congressman Waxman to tell him you support what he is doing.
    Thanks so much for your support!

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