Monday, November 30, 2009

Lunch with Eliot Spitzer

An interesting lunch indeed. The Investorside board (which I sit on) invited Eliot Spitzer to come and speak to the Investorside members a couple of weeks ago to reflect on the Global Research Settlement 5 years later. Given that the membership are independent research providers and Eliot's research settlement channeled money their way for 5 years, this was an interested crowd.

He covered some well trodden ground, like the need for transparency in research recommendations. He revisited his negotiations with Merrill-Lynch when he was investigating their research practices post the bubble bursting (the first time) and said the release of emails was a much bigger issue to M-L than any fine they would have to pay because of their research conflicts. The lack of independence in their sell side research was a huge issue precisely because their investment advisers had such a wide retail reach, and that was why he forced the issue of the release of their emails - and so their public embarrassment.

The walk through history was interesting, but his current views were more controversial, and he seems like a man with a score to settle. Especially his scathing views on Tim Geithner and Ben Bernanke who, in Eliot's view, are an example of the Peter Principle at work - where were they when the recent crisis was being predicted - and now they are supposed to be the solution?

He kept his choicest damnation for executive compensation. In his mind "it is outrageous and speaks to the loss of respect for fiduciary duty. There is no rational way you can justify the $20M plus decisions that compensation committees are making" for CEO pay. "The governing structure has broken down" and "we need to get shareholders back in the game".

Seems like he'll be a proponent of even stronger language than the new "say on pay" compensation regulations that we expect next year.

My observation of Eliot is that he is (as you would expect) whip smart, extraordinarily articulate, opinionated and a consummate politician with strong views on right and wrong in our financial systems - and I agreed with much of what he said. But I suspect his Achilles heel was his arrogance which still peeks out now and then - and he underestimated his enemies of which he had developed many.

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