After two years of campaigning and media speculation, Illinois Senator Barack Obama is now United States President-Elect Barack Obama. The historic significance of his election aside, the challenges he faces are very real and immediate, and the implications of his presidency in the current market downturn cannot be underestimated. For the boardroom, these implications could bring, yes, some real change. Poised as a nation at a point of economic divide, it is vital that directors anticipate and understand the character of this new administration.
At the top of Obama’s agenda will be filling his cabinet, and his selection of Treasury Secretary is one of the most vital appointments. That selection, named last month, is Timothy Geithner, who Obama plans to nominate to the post. As the president of the Federal Reserve Bank of New York, he has enjoyed a rapid rise through the ranks and has been praised for his role in helping to develop the bailout plan. Larry Summers, who held the Treasury post under Clinton and later endured a contentious reign as president of Harvard University, was named to head the White House National Economic Council.
A pressing question is whether Obama will continue with current Treasury Secretary Henry Paulson’s plan to overhaul and consolidate the regulatory framework under the Federal Reserve. It is likely that there will be some restructuring, but probably not on the scale that Paulson recommended. Expect Obama to select a new Securities and Exchange Commission chairman, in the mold of Arthur Levitt, who will be a strong advocate for shareholders. That could mean new rules for proxy access and broker votes, and, to the dismay of directors, less restrictive tests for shareholder proposals.
The other hot-button issue for directors in the light of the new administration is “say on pay.” Obama introduced the Senate’s version of the bill in 2007 and has rallied around it ever since. With the public outcry against excessive compensation in the midst of the credit crisis, expect Obama to do everything he can to confirm his sentiment that “the American people should not be spending one dime to reward the same Wall Street CEOs whose greed and irresponsibility got us into this mess.” Such a push towards say on pay and a general curb on executive compensation was inevitable following the credit crisis; remember that fellow presidential candidate John McCain was also a supporter of say-on-pay legislation.
Directors are certainly hoping that Obama makes good on his promise to reach across the aisle. Just how far that hand is extended could make the difference between reasonable regulation and new rules that make life more difficult for those who sit on the boards of public companies.