Over in the U.K., Liberal Democrat leader Nick Clegg is urging Prime Minister Gordon Brown to remove the senior banking executives involved in the risk taking which triggered the current crisis.

"Now the taxpayer has bailed out the banks, those senior executives who took excessive risks leading to this crisis shouldn't be let off the hook," Mr. Clegg said, proposing that board members of banks “should be barred from taking bonuses, to stop them following distorted short-term business models.”

Faced with an unprecedented restructuring of U.S. financial markets and institutions, the U.S. Congress is already on the executive compensation case, one of several provisions under the Troubled Assets Relief Program ("TARP"), a key feature of the just-signed Emergency Economic Stabilization Act of 2008 (the “Act”).

Financial institutions selling assets directly to TARP are subject to one set of executive-compensation restrictions; auction sales are governed by similar, but distinct standards. For now, the basics include a “claw-back” provision to recoup bonuses paid to executives based on inaccurate financial statements; the exclusion of incentives for excessive risk-taking; and the prohibition of golden parachute payments, including severance payments.

However, as currently drafted, TARP is mostly pretty vague, with fuller interpretation yet to come.

“This is a piece of legislation that raises many more questions that it answers,” says Steve Barth, a partner in the Transactional & Securities practice group of national law firm Foley & Lardner LLP. “The devil--and his compatriots--of the details will come over the next few months.”

One thing is certain--this is now a red-hot agenda item not just for troubled financial institutions, but for executive suites across the board. “Look for this evolving Act to be a game-changer for everybody,” says Barth, “possibly extending to all public companies, and maybe even private ones too.”

There is more, much more, ahead. Starting next week, please follow--and participate in--the discussion here as Barth and his colleagues delve into this critical new corporate mandate.

Jeff Heilman

10/10/08