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Leonard Rosenthal, whose comments are presented below, is a Professor of Finance at Bentley College and is recognized for his research that relates securities valuation to corporate governance, investor relations and regulatory variables.

For links to the referenced draft and other comments, see



Comments of

Leonard Rosenthal

August 5, 2008


The paper is well written and provides a well laid out discussion of the “Say on Pay” issue.  I think that Professor Gordon has made a significant contribution in explaining why Say on Pay in the U.S. would enhance the power of proxy advisors (when they already have too much power – my emphasis).  Another important contribution is whether Say on Pay has worked in the U.K., although there is a need for more empirical analysis on this.


One issue that has not been discussed is how to effectively voice displeasure over compensation when the firm has a staggered board.  In any given year, if no member of the compensation committee is up for election, there would be no opportunity to withhold a vote(s).  With Say on Pay, this would not be an issue.


I have some specific comments, some of which are meant to raise questions.  However, I don’t think that it would be useful to get into a debate about them at this point:


FTN 9 – Not clear yet just how much corporate governance changes have undercut the ability of the CEO to dominate the board selection proxy - we need more evidence on this.


Pg. 5 – Good point about what it is that we are trying to reward when we say “pay for performance.” I think that stock price and profits (properly defined) are both important.  I don’t think that any good comp system should just look at past profits, or short term stock performance.  In my opinion, the rewarded for performance should based both on a long term basis and should be appropriately indexed.


Pg. 6. – Really good point the boards pick consultants based on their “style.”


Pg. 13, last paragraph – The idea that “stock prices measure expectations of future earnings, which relate to new investment,” implicitly assumes that markets are efficient.  In the long-run, this is most likely to be true, but need to point this out in some way.  This is why looking at ROA over time, properly defined, is also important.


Pg. 15, paragraph 2 – Excellent point that “The system (UK) as a whole seems to tilt toward stasis rather than innovation in compensation practice.”  Clearly, if this is the case, we don’t want to do this in the US.


Pg. 18 – Interesting point is raised about success of governance with private equity firms vs. that of public firms.  One could also look at the literature on optimal levels of insider ownership and performance for publicly traded firms.



Leonard Rosenthal, Ph.D.

Professor of Finance

Bentley College

Waltham, MA 02452




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