By Cydney Posner

An article in the WSJ today discusses potential fallout from the financial crisis. In addition to the call, in testimony yesterday by SEC Chairman Christopher Cox, for regulation of currently unregulated complex derivatives such as credit default swaps, the article reports on the renewed demand for curbs on executive pay. While the current focus may be on pay in the financial industry, the article notes that the crisis is "prodding corporate boards to do their own soul-searching," with directors questioning whether their companies' compensation systems encourage unnecessary risk (a complaint often voiced about the compensatory schemes at firms in the financial industry) and boards "bracing for complaints, and efforts to curb executive pay, at next year's shareholder meetings." The article cites examples of several non-financial companies that have attempted to address potential compensation issues and excesses.

The crisis also brings into question whether the SEC's regulatory focus -- which emphasizes protection of widows and orphans while, in many cases, leaving unfettered by oversight trading in securities among sophisticated individuals -- may be wrong-headed or too narrow in its scope. Apparently the effects of trading by those who purportedly can fend for themselves may have a broader reach, leaving the detritus (albeit indirectly) to the widows and orphans after all.

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