Contact Fred Foulkes, 617-353-4281, ffoulkes@bu.edu

School of Law Professor Tamar Frankel, an authority on securities law and legal ethics, says the SEC is in a tough spot reviewing whether bailed-out Bank of America broke the law by not disclosing to shareholders bonuses to executives at Merrill Lynch, which BofA had bought.  She suggests three ways to enforce the law, which could bring fines, with a bank receiving bailout money.

“One is to impose a clear duty in such a case prospectively, for future actions.   Another is to impose the responsibility not on the bank but on the decision makers, the boards and executives.  The third is to remove by law any CEO that knew of the prepared bonuses and did not bring the question to the authorities for a decision.”

Contact Tamar Frankel, 617-353-3773, tfrankel@bu.edu

School of Management Professor James Post, an expert on corporate governance and business ethics, says the $210 million in retention bonuses for employees of bailed-out Fannie Mae and Freddie Mac are inappropriate under the economic circumstances.

“The news of retention bonuses at Fannie and Freddie gives me the same nauseous feeling I felt when looking at the newly released unemployment numbers.  At a time when another 640,000 lost their jobs in the last month, bonuses ranging from a few hundred dollars to more than a million make no sense.

“Even if we assume the F&F employees are stellar performers, a ‘bonus culture’ should not be subsidized any longer.  It is a mistake to turn them into mini-entrepreneurs, playing with public money.  F&F employees are – emphatically – working for the citizens of this nation.

“So, two suggestions.  First, start retraining the unemployed for those soon-to-be-vacated jobs at F&F.  Second, eliminate the bonus culture from any organization receiving federal money.  My strong suspicion is that those employees will still look forward to receiving their weekly or monthly paychecks.”

Contact James Post, 617-353-4162, jepost@bu.edu

School of Management Professor James Post, an authority on corporate governance and business ethics, in a BU Today Q&A discusses the impact of the furor over the AIG bonuses and how it could impact both the short-term recovery process and the long-term future of executive compensation in the financial services industry.

Contact James Post, 617-353-4162, jepost@bu.edu

Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and former counsel to the Fed Board of Governors, says taxpayer-owned insurance giant AIG should just not pay those executive bonuses and let them sue.

“Since the AIG bailout in September, the moribund company has paid out $120B to counterparties and others. The cynic in me says that there is a very good chance that a year from now the AIG bonus recipients will be employees of the AIG counterparties and that maybe, just maybe, these financial wizards did not drive the hardest bargain in settling with the counterparties in exchange for their future employment prospects.

“So how to get out of paying the bonuses? Just don’t pay them, let them sue for their bonuses knowing there’s going to be a massive counterclaim and a reevaluation of their performance over that last year or more.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

“It defies imagination that the Treasury Department would sign off on bonuses to AIG executives of any stripe, particularly to those in the company’s infamous Financial Products unit.  The claim that the bonuses are contractually owed is a fig leaf covering up corporate waste and abuse of taxpayer dollars on an enormous scale.

“At a minumum, any executives that choose to accept such bonuses should be required to demonstrate to the U.S. taxpayers that theire performance had nothing to do with the massive losses the firm is experiencing.  Treasury should be talking with AIG and its executives about the disgorgement of bonuses awarded from 2004-2007, not negotiating over awards for the disastrous results of 2008.

“AIG is de facto a failed enterprise.  Failed firms do not typically award bonuses to their executives.  This is a clear example of what Chairman Barney Frank of the House Financial Services Committee refers to as the ‘heads I win, tails I break even’ mentality of executive compensation.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu 

School of Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and former counsel to the Fed Board of Governors, says executives at banks taking taxpayer bailout funds should give back bonuses that flowed from investments in toxic assets that are now crippling the industry.

“It is generally understood that so-called ‘claw-back’ provisions will be a standard practice in executive compensation going forward.  When it comes to taxpayer bailouts, retroactive application of claw-back provisions should be a pre-condition to receiving funds.  In other words, ‘give it back or get out’ should be the standard for our capital-deprived institutions.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

“The debate over corporate executive bonus payments should be put in perspective.  Some say that the executives did not earn these bonuses and don’t deserve the millions in parting payments that they received.  But if parting payments were specified in the executives’ contracts they must be paid.  A binding contract is binding.”

Contact Tamar Frankel, 617-353-3773, tfrankel@bu.edu