_________________________________________________________________
E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
& P E N S I O N L A W
Vol. 5, No. 9: May 6, 2004
_________________________________________________________________
Publisher: LSN Employment, Labor, Compensation & Pension Journals
a division of
Social Science Electronic Publishing, Inc. (SSEP)
and Social Science Research Network (SSRN)
Editor: PAMELA PERUN
Urban Institute
Mailto:pamela@planetnow.com
Copyright: SSEP, Inc. 2004. All rights reserved.
Leading Social Science Research Delivered To Your Desktop
http://www.SSRN.Com/
___________________________________________________________
Topic of This Issue:
Enron and its Aftermath
___________________________________________________________
SEARCHING THE SSRN ELECTRONIC LIBRARY
To search the entire SSRN Electronic Library by author, title,
JEL code, or full text of the abstracts in our database, please
visit http://papers.ssrn.com/
To browse all abstracts published in this journal, please visit
http://www.ssrn.com/link/benefits-compensation-pension-law.html
REDISTRIBUTION
Individual and professional subscriptions to the journal are for
single users. It is a violation of copyright to redistribute
this document electronically or otherwise without the explicit
permission of Social Science Electronic Publishing, Inc.
Site licenses for organizations are available by contacting
Mailto:Site@SSRN.Com
SIGN OFF
SUBSCRIPTION MANAGEMENT
You can change your journal subscriptions by going to the SSRN
User HeadQuarters at the following link: http://hq.ssrn.com
Please enter the email address where you received this email in
the "Your Email Address" field and click "Submit". Click on your
name on the next screen, and your User ID and Password will be
emailed to you. Once you have received your login information and
successfully logged in, you will be able to change your journal
selections. If you have questions or problems with this process,
please email UserSupport@SSRN.com or call 877-SSRNHelp (toll free
877.777.6435).
ALIGNMENT
If this document is misaligned, please set type face to a
non-proportional font such as Courier 10.
PAPER DOWNLOADS
If you need assistance downloading papers from our web site,
please contact Mailto:Support@SSRN.Com
T A B L E of C O N T E N T S
_________________________________________________________________
NEW and FORTHCOMING ARTICLES
"Enron, Pension Policy, and Social Security Privatization"
Arizona Law Review, Vol. 46, No. 1, p. 53, Spring 2004
RICHARD L. KAPLAN
University of Illinois at Urbana-Champaign College
"Enron Retirement Plan Litigation May Have Far-Reaching
Significance for Plan Fiduciaries"
Journal of Taxation of Investments, Vol. 21, No. 3, Spring
2004
JEFFREY BRYANT
Wichita State University
W. Frank Barton School of Business
"A Reasonable Approach to Deferred Compensation in the Post-Enron
Climate"
Tax Notes, Vol. 102, No. 15, April 12, 2004
RICHARD J. BRONSTEIN
Paul, Weiss, Rifkind, Wharton & Garrison LLP
MICHAEL D. LEVIN
Paul, Weiss, Rifkind, Wharton & Garrison LLP
"Managerial Fiduciary Duty and Social Responsibility: The
Changing Nature of Corporate Governance in Post-War America"
Enterprise & Society, 2004
ERNIE ENGLANDER
George Washington University
Department of Strategic Management & Public Policy
ALLEN KAUFMAN
University of New Hampshire
Whittemore School of Business and Economics
WORKING PAPERS
"Expensing Stock Options: The Role of Publicity"
CHANDRAKANTH SEETHAMRAJU
Washington University, St. Louis
John M. Olin School of Business
TZACHI ZACH
Washington University, St. Louis
John M. Olin School of Business
S S R N I N F O R M A T I O N
_________________________________________________________________
* Partners in Publishing
* Administrative Information
- Missing issues & change of address
- Solicitation of abstracts
* Directors
* Subscription to SSRN Journals
_________________________________________________________________
ACQUIRING PAPERS
Download papers directly from the included web address or contact
the author or other contact person directly. Provide an address
to which the author or other contact person can send a paper
copy and mention that you saw the abstract in SSRN. Some of
SSRN's Partners in Publishing require a subscription or charge a
fee for electronic downloads.
EDITORIAL POLICIES
To provide the broadest coverage of research in Employee
Benefits, Compensation & Pension Law we do not referee working
papers. We accept abstracts of working papers in Employee
Benefits, Compensation & Pension Law whose topics suit the
coverage of the journal and which are part of the worldwide
scholarly discourse.
N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Enron, Pension Policy, and Social Security Privatization"
Arizona Law Review, Vol. 46, No. 1, p. 53, Spring 2004
BY: RICHARD L. KAPLAN
University of Illinois at Urbana-Champaign College
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=519642
Paper ID: Illinois Public Law Research Paper No. 04-10
Contact: RICHARD L. KAPLAN
Email: Mailto:RKAPLAN@LAW.UIUC.EDU
Postal: University of Illinois at Urbana-Champaign College
504 East Pennsylvania Avenue
Champaign, IL 61820 UNITED STATES
Phone: (217) 333-2499
Fax: (217) 244-1478
Paper Requests:
Contact Pat Estergard at Mailto:pesterga@law.uiuc.edu Postal:
324 Law Building, MC 594, 504 E. Pennsylvania, Champaign, IL
61820, Phone: 2l7-333-9853.
ABSTRACT:
This article analyzes current U.S. pension law and policy in
light of the Enron implosion and considers the implications of
this analysis for privatizing Social Security. The article
begins by addressing the major shift in retirement funding risk
from professionally managed plans to ordinary workers, beginning
with the substitution of defined contributions plans for defined
benefit plans, and continuing with the growing predominance of
401(k) plans. The article then examines the central problem of
the Enron catastrophe: the heavy concentration of 401(k) plans
in employer stock. From this context, the article then considers
the essential premise of Social Security privatization - namely,
that individuals should control their own retirement assets. The
article concludes with policy recommendations based on this
analysis to prevent the sort of financial devastation that Enron
(and others) has brought.
______________________________
"Enron Retirement Plan Litigation May Have Far-Reaching
Significance for Plan Fiduciaries"
Journal of Taxation of Investments, Vol. 21, No. 3, Spring
2004
BY: JEFFREY BRYANT
Wichita State University
W. Frank Barton School of Business
Contact: JEFFREY BRYANT
Email: Mailto:jeffrey.bryant@wichita.edu
Postal: Wichita State University
W. Frank Barton School of Business
Wichita, KS 67260 UNITED STATES
ABSTRACT:
The story of Enron and its executives, accountants, lawyers and
bankers has been well and often told. During the 1990s, the
company's stock price rapidly climbed as the business expanded.
When significant losses were incurred and Enron restated
financial results in 2001, the value of that same stock dropped
even more dramatically than it rose. In the process, Enron
revealed it had concealed debt amounting to billions of dollars
through fraudulent accounting for partnerships and complicated
illegal loan contracts. This devastated the investment
portfolios of many Enron stockholders and wiped out the
retirement savings of Enron employees. Predictably, lawsuits
have been brought by a host of injured parties against Enron and
its accomplices. Among them, Enron employees and the Labor
Department are seeking to recover millions in retirement money
lost as the company fell into bankruptcy. In September 2003, a
significant opinion was issued by a Texas federal district court
in the Enron retirement plan case. (In re Enron Corp.
Securities, Derivative & ERISA Litigation v. Enron Corp., SD
Tex. No. 4:01-CV-3913 (September 30, 2003). The slip release is
331 pages and can be downloaded from a website devoted to the
case, which is maintained by Keller Rohrback L.L.P. to keep
class members informed regarding the litigation. Plaintiffs
filed a Second Amended and Consolidated Complaint on January 2,
2004.) The lengthy ruling of District Judge Harmon on Enron
defendants' motion to dismiss contains notable pronouncements
concerning fiduciary responsibilities and obligations with
respect to employee pension benefit plans. The author analyzes
the decision and what it means for fiduciary responsibility.
______________________________
"A Reasonable Approach to Deferred Compensation in the Post-Enron
Climate"
Tax Notes, Vol. 102, No. 15, April 12, 2004
BY: RICHARD J. BRONSTEIN
Paul, Weiss, Rifkind, Wharton & Garrison LLP
MICHAEL D. LEVIN
Paul, Weiss, Rifkind, Wharton & Garrison LLP
Contact: RICHARD J. BRONSTEIN
Email: Mailto:rbronstein@paulweiss.com
Postal: Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064 UNITED STATES
Co-Auth: MICHAEL D. LEVIN
Email: Mailto:mlevin@paulweiss.com
Postal: Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064 UNITED STATES
ABSTRACT:
Recent corporate scandals have drawn attention to various
compensation practices, including nonqualified deferred
compensation plans. This scrutiny has created some political
pressure for legislative and regulatory reform of the tax law
rules governing deferred compensation. This article describes
the long history of the tax rules in the deferred compensation
area, as well as the impact of recent events. After examining
the current legislative proposals in the area, the authors give
their views regarding the appropriate responses by Congress and
the Treasury.
______________________________
"Managerial Fiduciary Duty and Social Responsibility: The
Changing Nature of Corporate Governance in Post-War America"
Enterprise & Society, 2004
BY: ERNIE ENGLANDER
George Washington University
Department of Strategic Management & Public Policy
ALLEN KAUFMAN
University of New Hampshire
Whittemore School of Business and Economics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=472965
Contact: ERNIE ENGLANDER
Email: Mailto:ejeeje@gwu.edu
Postal: George Washington University
Department of Strategic Management & Public
Policy
203 Monroe Hall
Washington, DC 20052 UNITED STATES
Phone: 202-994-8203
Fax: 202-994-8113
Co-Auth: ALLEN KAUFMAN
Email: Mailto:allenkaufman@attbi.com
Postal: University of New Hampshire
Whittemore School of Business and Economics
15 College Road
Durham, NH 03824 UNITED STATES
ABSTRACT:
Enron's demise and the corporate investigations that ensued have
reinvigorated the debate on managerial fiduciary duty. Some have
argued that the recent stock bubble and the ensuing revelations
of managerial malfeasance merely repeat history: Capitalism
regularly corrects market exuberance and redirects resources
along an efficient path. True, each bubble has its particular
causes. The most recent one arose in concert with
over-investment in high technology and recently deregulated
industries.
Those who claim that the 1990s bubble marked a significant
change point to evidence that Enron's practice of misreporting
information to bolster performance figures and executive stock
option values extended widely within the corporate sector. In
this view, excess was connected to stock option incentive
systems that allowed these managers to exploit information
asymmetry between themselves and investors. Even Alan Greenspan,
the Chairman of the Federal Reserve Bank, expressed this view
when he openly questioned the market's ability to disperse
information in an accurate and timely manner and the wisdom of
reporting rules that did not demand that stock options be
included as business expenses.
In this essay, we elaborate this theme - that the stock
market's deflation exposed a structural reworking of managerial
incentive hierarchies and managerial ideology. During the 1990s,
U.S. managerial capitalism underwent a profound transformation
from a technocratic system to a proprietary one. In the former,
managers functioned as teams to sustain the firm and to promote
social welfare. In the latter, corporate bureaucratic teams
broke up into tournaments in which managers competed for
advancement toward the CEO prize. Because their reward system
depended heavily on stock options that were accompanied by
downside risk-protection, these tournaments turned managers into
a special class of shareholders. And, like any other
shareholder, managers sought to maximize their individual
utility functions - even if it deviated from the firm's best
interest. Once this new regime became established practice,
managers discarded their technocratic, stakeholder creed and
adopted a property rights ideology, originally elaborated in
academia by financial agency theorists.
JEL Classification: G3, J3, K2, L1, M1, N8
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Expensing Stock Options: The Role of Publicity"
BY: CHANDRAKANTH SEETHAMRAJU
Washington University, St. Louis
John M. Olin School of Business
TZACHI ZACH
Washington University, St. Louis
John M. Olin School of Business
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=461760
Date: October 2003
Contact: TZACHI ZACH
Email: Mailto:zach@olin.wustl.edu
Postal: Washington University, St. Louis
John M. Olin School of Business
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899 UNITED STATES
Phone: 314-935-4528
Co-Auth: CHANDRAKANTH SEETHAMRAJU
Email: Mailto:seethamraju@olin.wustl.edu
Postal: Washington University, St. Louis
John M. Olin School of Business
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899 UNITED STATES
ABSTRACT:
In this paper we offer explanations for why firms began
voluntarily adopting the expensing provisions of FAS 123 in the
second half of 2002. First, we find that firms with greater
publicity exposure are more likely to voluntarily expense stock
options, controlling for other factors such as the magnitude of
the stock option expense. This publicity incentive also explains
the timing of the decisions, the summer of 2002, immediately
following the accounting scandals of Enron and WorldCom. Second,
we find that valuation benefits from expensing stock options,
proxied by market's reaction to the proposition by the FASB to
undertake a project requiring firms' to expense stock options,
are positively associated with the decision to expense. Third,
we do not find evidence that stronger corporate governance is
associated with the likelihood to expense options. Finally, we
find some evidence suggesting that, compared to control firms,
expensing firms reduce the number of options granted in 2002 and
have started to make more changes to their compensation plans as
reflected in the most recent proxy statements.