Open Books: Compensation policies encouraging excessive corporate risk-taking now face reform

Like a house of cards, all it took was one faulty piece to bring the whole company down. When insurance giant AIG collapsed in September 2008, experts knew exactly where to place the blame. Not on the entity that insured vacationers' lost baggage or the one backing purveyors of renewable energy. It all boiled down to the risks taken by one division insuring mortgage-backed securities.

And senior management took that risk for good reason: Deals that resulted in billions of dollars in AIG losses netted $165 million in bonuses for executives in that troubled division--after the company had received roughly $180 billion in government bailout funds.

Developing Disclosure

Schapiro has emphasized that the SEC is seeking not just increased disclosure from companies, but better disclosure, which Jones says is exactly where the agency should focus. In order to manage the length of already unwieldy proxy statements, the SEC specified companies need only release more information if it's relevant to their risk profile.

Associate Editor

Lauren Williamson

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