New York Times business writer Gretchen Morgenson is one of the best in the business. But that doesn’t prevent the Truth on the Market blog from criticizing her recent article on executive compensation and the proposed new SEC regulations.
Geoffrey Manne, who is a law professor at the Lewis & Clark Law School, writes on the blog that, “To me this sort of story highlights one of the dangers of mandatory disclosure: That the information might actually be used. Weâ€™re all accustomed to thinking that shareholders are rationally apathetic, but rationality means nothing if it doesnâ€™t mean that shareholders will be less apathetic [does that make them more pathetic? â€” ed.] when the cost of action goes down. It is, after all, the fundamental grounding for our securities regulatory regime.
“And this may be bad. The problem is that forced, Plain English disclosure of pay packages along with Ms. Morgensonâ€™s finely-honed commentary (â€?itâ€™s outrrrrrrrrageous!â€?) may induce shareholder action â€” in precisely the sort of situation in which the shareholdersâ€™ collective best interests are served by specialized decision-making by the board and seriously-limited or no shareholder second-guessing of business decisions.”
Another law professor, Larry Ribstein of the University of Illinois, also criticized Morgenson’s story on his blog, writing, “The NYT is, in Morgensonâ€™s space at least, sinking to the level of its tabloid competition. The story is not, or at least does not seem to be, inaccurate. But the entire story was written to maximize attention and minimize information, just as Jensen hypothecized. At some point the NYT may recognize that its hope for survival is to offer something more sophisticated than the blogs that are becoming its real competition.
“More broadly, we need more work along the lines of Guay, et al, on the pressâ€™s role in corporate governance. To what extent do stories like this shape misguided public policy like the SECâ€™s recent compensation disclosure rule? What is the social cost of the useless reshuffling firms must do to minimize damage from sensationalist stories like this?”