Center Blog Discusses Mitigation of Conflicts for Corporate Leaders and Directors Chosen for Government Roles

January 13, 2017

As attention focused this week on Senate confirmation hearings for several of President-elect Trump's cabinet nominees, our Center On Executive Compensation released a blog post pushing back against certain critics and stating that executives and company directors should be encouraged to serve in the government by developing transition arrangements "that address potential conflicts of interest while also addressing, in a fair and appropriate way, the longer term nature of executive and director compensation."  Certain critics on Capitol Hill and certain stakeholders have suggested that executives and directors should forfeit deferred compensation in order to be free of conflicts of interest.  The blog post points out, however, that the majority of compensation for senior executives (e.g., 66 percent for S&P 500 CEOs) is in the form of long-term equity "in response to the need for companies to take a long-term view of creating shareholder value, and not profit in the short term from actions that aren't in the best interests of a company and its multiple stakeholders."  Recognizing that these arrangements introduce a measure of complexity during a transition to government service, the Center's post points out that "executives called to government service should not be forced to choose between serving their country and losing outstanding incentive compensation or declining the call to serve."  The post also notes that while specific solutions will vary by company, the Center suggests a reasonable set of principles for "balancing the need to avoid conflicts of interest while promoting fairness and transparency," including divestment by the executive in all shares owned and pending compensation arrangements paid in equity, the use of an irrevocable blind trust for pending compensation using valuation principles consistent with ethics laws, and for public companies, appropriate SEC disclosure of the arrangements.