PART ONE.
"Clawbacks" is another word to describe recouping executive pay. The ability to take some of the executives' pay package back to the bank accounts of the corporation and its shareholders is very limited, however. Basically clawbacks are only possible because of misuse of corporate funds or other improper activities of corporate executives that hurt the bottom line and so reduce shareholder value.
As anyone knows who follows excuses for corporate behavior in the 21st Century, the bottom line and shareholder value are the only goals corporate executives say they pursue.
Except when they don't. When corporate executives act for their own interests at the expense of the corporation and the corporation's shareholders, then and only then do clawbacks become possible.
At one large company, shareholders want to change the current recoupment standard from just "'willful misconduct' that causes significant financial or reputational harm to the company." They want to "also cover wrongdoing that arose because of negligence or a supervisory failure." See Gretchen Morgenson, "Fair Game / Shareholder Proxies Could be the New Regulators" (New York Times Online, posted on Friday, March 24, 2017), available through www.nytimes.com (subscription may be required).
So, the key is tangible, real damage to the corporation's coffers and to the value of its shares. Yet, companies reportedly oppose shareholder proxies like this one as a general rule. Presumably, when it is reported that "companies" generally oppose these shareholder proxies, the reporting really means the boards of directors or perhaps smaller units of the boards such as compensation committees.
Yet directors have fiduciary duties toward the corporation and arguably to the corporation's shareholders. Their duties include a duty of loyalty and a duty to avoid self-dealing, among other duties. If it is a fiduciary breach or other breach of duty for a director to oppose shareholder proxies like these, is the directors' opposition covered by insurance?
We are talking after all about shareholder proxies that are proposed to make it easier to recoup money for the corporation and its shareholders. It may be inconvenient for wayward directors or officers to pay money for their alleged breaches of duties, but would any such alleged breaches be covered by insurance? D&O coverages, paid for by the shareholders, perhaps?
It seems that there is a pretty clear argument that it is a breach of duty to oppose shareholder proxies which, if adopted, could only benefit the corporations and their shareholders while at the same time adversely affecting only the directors and officers themselves.
Do you think differently?
To be continued ....
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