When the U.S. Treasury Dept. unveiled guidelines on executive compensation for companies receiving public money from the federal government that require “board of directors’ adoption of company policy relating to approval of luxury expenditures,” including any expenditures related to aviation services, the policy unclear about what constituted “aviation services.” The Weekly of Business Aviation asked several regulatory pundits, including Venable’s John Cooney, who involved in policy disputes involving legal interpretation of most major federal regulatory statutes during the Reagan Administration, to provide their interpretation of the guidelines.
According to Cooney, one reason bank regulators draft public guidance so broadly is because they understand their rules will apply to many different entitles with business models and product offerings will differ substantially. “While the board will still have substantial discretion, it will develop a good understanding of what Treasury wants the policy to resemble,” Cooney said.
However, Cooney pointed out, there is no objective test that separates luxury from necessity. “What might be luxury in one context may be a necessity for another company with different assets and that offers different services in different parts of the world,” he said.
Treasury also has options to handle companies that do not follow its guidelines. “These sanctions include informal, non-public criticism; public criticism; Treasury's refusal to exercise its discretion to grant the company relief from the terms of the assistance agreement; and, in the worst case, refusal to provide further financial assistance to the company or to do so only under more stringent terms,” Cooney said. “A disagreement about a company’s `luxury goods’ policy likely would be addressed and resolved through one of the lesser Treasury sanctions, because it would not be in the regulated entity's self-interest to let a dispute about an issue that is not critical to its success adversely affect its relationship with its regulator and its source of capital.”