Friday, May 11, 2007


So the House Committee on Oversight and Government Reform - chaired by energetic Democrat Henry Waxman - is looking into “conflicts of interest” at big executive pay consulting firms like Hewitt, Mercer, and Towers Perrin. The Committee is asking what other work these guys do for their corporate clients, on the theory that side gigs may interfere with a consultant's independence.

Mr. Waxman is flashing back to the issue of accounting firm conflicts of interest. Sorry, Henry, this is different. Auditors, those poor slobs, are clearly charged with a public duty. Long before accounting firm conflicts were supposedly stamped out by the sweaty foot of SOX, the Supreme Court said that “the independent auditor assumes a public responsibility transcending any employment relationship with the clients.”

But when companies brag about using "independent" compensation experts, they just mean that the consultant is not actually on their payroll. No one thinks these firms are truly impartial and they're hardly public servants, so where’s the conflict of interest? The estimable Charlie Munger, you may recall, compared compensation consultants to prostitutes, so we must ask: If a hooker does chores at a john’s house for extra income, does that undermine the integrity with which she delivers her regular services?

We hope not to spend the weekend contemplating that question. Have a good one.