Thursday, May 17, 2012


"Clawbacks" may improve
 Execs' appreciation of ERM


A Wall Street Journal article headed Pay Clawbacks Raise Knotty Issues (, Suzanne Kapner and Aaron Lucchetti write that "Wall Street is getting its first high-profile opportunity to prove it is serious about recovering pay from executives whose blunders waste shareholder treasure."

Clawbacks, they explain, "are efforts to recover prior compensation paid to employees who engaged in behavior that hurt companies and their shareholders."

What that means for ERM, BC, and even perhaps COOP practitioners is that Very Senior Executives may now have a very good, "financially sound" reason to take an active role in risk management.

Unlike Dodd-Frank and Volker laws, "A far-reaching provision in the new financial-overhaul law will force U.S. public companies to get tougher about making top executives repay improperly awarded incentive compensation," writes WSJ reporter Joann S. Lublin in an article headlined Law Sharpens 'Clawback' Rules for Improper Pay (

Lubin adds that "Under the legislation signed July 21, the Securities and Exchange Commission must order all (public) companies to adopt so-called clawback policies. The provision requires businesses to recoup as many as three years of ill-gotten pay from current and former executive officers after a material financial restatement—even if the executive wasn't to blame."

If Ms. Lubin's article is accurate, Very Senior Executives need to copy President Harry S Truman's desktop admonishment: "The buck stops here," meaning their desk - even if they are absent.

It is a given that executives facing loss of revenue from as much as three years back will be able to fight the claim in court. Someone must pay the executives' legal fees; asking the organization to foot the bill to defend the executive may be denied. Will an executive insurance policy cover such issues? Will the insurance company pay up if it is covered?

The bottom line for executives, and apparently those people reporting to them - as is the case with the recently exposed $2 billion loss by J.P. Morgan Chase - is that even if they escape a clawback effort, their defense will be expensive and the legal hassle may damage the organization's image.

If the new SEC requirements are enforceable and if they are indeed enforced, Very Senior Executives may develop a respect for risk management and may begin to give it some serious support.

If I wrote it, you may quote it.

Longer articles at

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