In the era of U.S. President Trump, we are likely to see a lot of deregulation in government, reduced public enforcement, and possibly some curbs on private enforcement. Corporate compliance efforts may also be scaled back, and compliance officials may learn again to defer to the judgment of the entrepreneurs in the corporation’s profit centers. If a bubble develops in financial stocks (as seems more than possible), some corporate debacles and scandals are predictable. What defenses do shareholders have in this brave new world?
Wells Fargo & Co.’s decision to claw back a record US$60 million from two senior executives (US$41 million from CEO John Stumpf and US$19 million from Executive Vice President Carrie Tolstedt, both retired) has not received the attention it deserves. Strikingly, these clawbacks were not the product of federal legislation but of investor activism. Neither the Dodd-Frank Act nor Sarbanes-Oxley would have mandated a clawback, because their provisions apply only if Wells Fargo had announced an accounting restatement (which it has not done and probably will not do). Instead, Wells Fargo’s far broader clawback policy was the result of pressure from New York City’s pension funds in 2013, which had threatened to file a shareholder proxy resolution unless Wells Fargo adopted a policy broadly authorizing clawbacks outside the context of restatements. Possibly, this could become the next focal point for investor activism.
The case for broad clawbacks comes into clearer focus when one looks closely at a series of recent corporate scandals, which each raise the same jaw-dropping question: What were those guys thinking? Did Volkswagen really believe that its “defeat device” would go undetected indefinitely? Did Wells Fargo think that it could fire 5,300 employees for the same fraudulent practice without someone noticing? Did major pharmaceutical companies—most notably, Valeant Pharmaceuticals International and Mylan—really expect they could buy an established drug and spike its price 600 percent or 700 percent without facing protests and congressional investigations?...
This content is available to IABC members only. To continue reading, log in below.