Corporate profiling and Sarbanes-Oxley

The AIG $400,000 junket may prove to be the straw that broke the camel’s back. Coming as it did in the midst of the worst financial crisis in recent history and after the federal government authorized a 70 billion dollar bailout of AIG, the extravagant junket has become a symbol of reckless corporate spending. The national anger is so widespread and the pressure on Congress so intense that a radical idea is reported to be under consideration:  profiling of corporate executives.  

Profiling, the extrapolation of information about something, based on known qualities, may refer specifically to sterotypes, offender profiling, racial profiling, cultural bias, gender bias, performance analysis (in software engineering) and forensic profiling.  Source: Wikipedia.  In the context of law enforcement and health care profiling has been controversial.  Civil rights and health care advocates object to profiling as a violation of civil rights.  But in light of countless examples of reckless and sometimes criminal behavior by top corporate and Wall Street executive that have caused massive losses of jobs and pensions all over the country and have led directly to the current economic crisis it is not clear who, other than highly paid lobbyists and corporate lawyers, will strenuously object to profiling those responsible for corporate governance.

The goal of corporate profiling is prevention, prevention of reckless, erratic, and foolish decision making driven by a manic determination that the business be or appear to be successful in the short term and an unrestrained willingness even eagerness to pamper and to reward those “at the top of the house,” including members of the Board of Directors.

There is already a great deal of data on decision-making by those responsible for corporate governance in corporations and firms that have imploded.  The next step is thought to be the creation of a relational database identifying dates, decisions, decision-makers, outcomes and massive financial loss.  Representatives of corporate stakeholders, principally investors, will be invited to study the database along with experts in corporate governance and government regulators to discern patterns of behavior that have proven to be indicators of future reckless and potentially devastating decision-making.  There is disagreement over whether the database or the conclusions about what constitutes predictive behavior should be made public.  Privately, some members of Congress have expressed concern that the same analysis being proposed of corporate behavior could be done on Congressional behavior.  For that reason, it is likely that an effort will be made to find private funding for the corporate profiling project.  If public funds were used Congress would face demands for full disclosure of the project, a demand that would be politically impossible to oppose.

A companion proposal to the corporate profiling project is being discussed: advance disclosure via the Internet of proposed expenditures for the comfort and benefit of those responsible for corporate governance along with a waiting period and a mechanism for corporate stakeholders to react to the proposed expenditures of corporate funds.  Helicopters, parachutes, performance-free pay packages, lavish expenditures on interior design, ornate furniture, exotic oriental rugs, paintings suitable for the Museum of Modern Art, electric privacy glass, multiple club memberships, toga parties, and $6,000 shower curtains are but a few examples of what belong to the informal category of “corporate perks.”  Researchers will study whether expenditures the principal purpose of which is to pamper and to insulate corporate executives from accountability and from market risk are rock solid proof of indicators of a loss of focus on fiduciary responsibility.

It is unclear how corporate profiling would affect reporting requirements under Sarbanes-Oxley.