How to Handle Conflicts of Interest? Don't Create Them in the First Place!
Originally posted October 2009
There has been much written about the challenges and problems associated with conflicted executive compensation consultants. The SEC has proposed wide disclosure of most services provided to fees paid by publicly traded companies for consulting services in the hopes that this transparency will limit both real and apparent conflicts of interest and provide shareholders a with better understanding of how executive compensation is determined for these companies. Grahall is an organization whose core services are executive compensation but who, like most other consulting firms provides additional services, sometimes to these same executive compensation clients. We applaud and encourage more transparency in terms of services and fees and agree with the SEC that this can benefit regulators, shareholders and companies alike.
Essentially, we see conflicts as being misunderstandings (on the part of Boards, management, executives, shareholder, stakeholder and the advisors themselves) about the type of assistance purchased and the actual assistance delivered. An additional and important point of clarification is to establish who the advisor works for (shareholders, directors, executives). It is also critical is affirmatively understand who is paying the bill, that person or group is the client. Boards, executives, shareholder, and sometimes even the consultants themselves misunderstand the relationship and the expectations. Where there is confusion over which the consultant works for and exactly what the consultant has been hired to do, conflicts of interest can arise.
Grahall has developed several “model structures” to govern its client relationships and avoid conflict of interest situations. We work with each of our executive compensation clients in one the following capacities and we are clear in our engagement letters which of these structures will apply:
–Individual employee or executive advisor or advocate
–Management teams’ advocate
–Board of Directors advisor
–Act in the organization’s best interests
To read more about Grahall's approach and gather some perspective on the background and current environment surrounding executive compensation consulting read "Alternative Uses of Compensation Consultants".