By Christina Rexrode
A shareholder activist group is taking aim at the revolving door
between banks and the U.S. government.
The union group AFL-CIO sent letters Wednesday to seven banks,
including Citigroup Inc., J.P. Morgan Chase & Co. and Goldman
Sachs Group Inc., asking for more information on how they pay
executives departing for government jobs.
Shareholder groups have long disparaged "golden parachutes," or
payouts for executives when they leave a company. But the AFL-CIO's
focus on payouts for executives who leave for the public sector is
a new wrinkle.
In two-page letters to the banks, the AFL-CIO asks for
disclosure of which executives could receive accelerated or
continued stock awards--something that employees often have to give
up when they resign from a company-- if they leave for government
service.
The letter raises the questions in the context of executive
compensation and what shareholders get out of the payments.
"Why is it in the interest of Goldman Sachs to incentivize such
departures?" AFL-CIO President Richard Trumka wrote in a letter to
Goldman Sachs's board, echoing language used in similar letters to
Bank of America Corp., Lazard Ltd., Morgan Stanley, Wells Fargo
& Co. and the other banks. "Surely Goldman Sachs does not
expect favorable government treatment from its former
executives."
The banks declined to comment.
To the banks, encouraging employees to go into public service
can be a matter of civic pride and a way for employees to bring
expertise and valuable perspective to the government. Since leaving
Wall Street for the public sector can require a substantial pay
cut, it only makes sense, some banks have privately argued, to let
employees who follow that path keep their unvested stock
awards.
But others, including Sen. Elizabeth Warren (D., Mass.), a
frequent Wall Street critic, have expressed concern that the
regulatory agencies are being populated by alumni of the banks they
are charged with overseeing.
In an op-ed article in The Wall Street Journal this week, Sen.
Warren and Sen. Joe Manchin (D., W.Va.), both members of the Senate
Banking Committee, urged the Obama administration not to nominate
"Wall Street insiders" for two empty seats on the Federal Reserve's
Board of Governors.
Sen. Warren and Senate Majority Whip Richard Durbin of Illinois
have also said recently they will oppose the Obama administration's
nomination of Lazard investment banker Antonio Weiss to be the
Treasury's undersecretary for domestic finance. They cited the
banker's involvement in a so-called tax-inversion deal, in which a
U.S. company reincorporates abroad and cuts its tax bill.
If his nomination is confirmed, Mr. Weiss would follow a
well-worn path from the banking world to federal government.
Treasury Secretary Jacob Lew, for example, is a former Citigroup
managing director, and Henry Paulson, the Treasury secretary during
major parts of the financial crisis, had previously been chairman
and CEO of Goldman Sachs.
Some of the banks are more explicit than others in how they
treat top employees who decamp for the government. Some, like Bank
of America and Lazard, merely give board committees the discretion
to pay out unvested stock awards to top employees when they leave,
the AFL-CIO notes.
Citigroup allows for certain executives to keep their unvested
stock, with those awards continuing to vest on schedule, if they
leave to work in government, charity or education.
J.P. Morgan allows for the same benefit to operating-committee
members if they leave the bank to accept a government position or
run for office. Goldman Sachs allows for top executives to get
their stock in a cash payment if they leave to work in the
government, to avoid conflicts of interest.
It isn't clear what will result from the letters from the
AFL-CIO, which owns small amounts of shares in each bank. The
organization said it may try to get its requests on the ballot for
the banks' spring shareholder meetings, depending on the banks'
response to the letters.
Shareholder proposals rarely pass at those meetings, but the
proposals can expose a company to negative publicity and are one of
the few ways for smaller shareholders to get a company's attention.
Occasionally, they help spur changes. Bank of America shareholders
passed a resolution in 2009 proposed by another union group, the
Service Employees International Union, that resulted in the bank
stripping the CEO and chairman at the time, Kenneth Lewis, of his
chairman title.
Victoria McGrane contributed to this article.
Access Investor Kit for Lazard Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=BMG540501027
Access Investor Kit for Bank of America Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0605051046
Access Investor Kit for Citigroup, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US1729674242
Access Investor Kit for The Goldman Sachs Group, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US38141G1040
Access Investor Kit for JPMorgan Chase & Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US46625H1005
Subscribe to WSJ: http://online.wsj.com?mod=djnwires