What I like about Sun Life Financial Inc. giving shareholders an advisory vote on executive compensation (joining seven other Canadian financial institutions including most of the large banks, although not Toronto-Dominion Bank and Manulife Financial Corp.)is that the company has evidently recognized something has to be done by business to rebuild shareholder and public trust.
Since the Enron years, most polling acknowledges a steady decline in trust in business and financial institutions. Any doubts about the extent of the decline are obviated when you look at the results of a recent Harris Poll:
Those who think 'most people on Wall Street would be willing to break the law if they believed that they could make a lot of money and get away with it' are up to 71%. The highest number previously was 64% in 1996.
True, this is Wall Street we are talking about, ground zero for dishonest and manipulative practices in investment and compensation strategies. But mistrust is becoming indiscriminate and ubiquitous.
There are those who think this trust deficit is temporary, a function of the economic tsunami hitting global finance. Once things go back to "normal", the argument goes, the pressure for greater transparency in compensation policies and increased board oversight will whither away in a sea of fatter profits.
Ian Davis, worldwide managing director of McKinsey, arguing the contrary, is closer to the truth: He has written a piece called 'The New Normal' in which he forecasts that:
". . . around the world governments will be calling the shots in sectors (such as debt insurance) that were once only lightly regulated. They will also be demanding new levels of transparency and disclosure for investment vehicles such as hedge funds and getting involved in decisions that were once the sole province of corporate boards, including executive compensation."
This will be the new normal, and without actions similar to that of Sun Life and the seven other Canadian financial institutions increased shareholder activism, loud public displeasure, media sniping, punishment by consumers and abrupt regulation will surely follow.