On Friday, Financial Standards Board Chairman Robert Herz delivered a speech entitled “ History Doesn’t Repeat Itself, People Repeat History - Front-Line Thoughts and Observations on Creating a Sounder Financial System” at the National Press Club, in Washington D.C. Chairman Herz, noted that “[w]hile accounting did not cause the crisis” it has revealed “a number of areas requiring improvements in standards and overall transparency.” The FASB over the last couple of months has attempted to address some of these areas as evidenced in recent proposed guidance. Chairman Herz noted that the recent financial crisis has highlighted a “number of relationships of public policy importance between accounting standards and financial reporting to investors, on the one hand, and regulatory reporting by banks and regulatory policy by bank regulators, on the other hand.” On a more macro economic level, Chairman Herz also cautioned against continued government intervention in the form of taxpayer-funded bailouts of major financial institutions and other major corporations.
Chairman Herz noted that one welcome development stemming from the financial crisis was a collective call for enhanced transparency. He emphasized that transparency is both a fundamental and “essential attribute of sound financial markets.” He also noted that “[e]ffective regulation, oversight and enforcement are also key ingredients of sound markets, as is the appropriate exercise of due diligence by investors and proper risk management by financial institutions.” Chairman Herz acknowledged, however, that the “balkanized regulatory systems, both in the U.S. and across international financial markets, coupled with a deregulatory philosophy by key policymakers may have made it difficult, if not impossible, to rein in the inherently unsound practices and overall exuberance driving these activities.”
He also emphasized the importance of adopting reforms that seek to “promote public confidence in the proper functioning of and fair dealing in our capital markets and in the overall health and stability of our financial and economic system.” Chairman Herz in this regard talked about forms of “excessive executive compensation not tied to performance.” While he acknowledged that there are many excellent CEOs running U.S. corporations, he noted that “it really rubs many people the wrong way when the CEO of a large company gets paid $150 million during the three or four years he or she was in charge and then, after running the company into the ground, is given another $50 million to leave.”
In his closing remarks, Chairman Herz stated that going forward policymakers “have the dual challenge and responsibility in the global context of both ensuring the health and vitality of our capital markets and economy, not only for our benefit, but also for the sake of the rest of the world, while also being an active and constructive participant in developing and supporting global financial and regulatory solutions and mechanisms.”