Will 'clawback' efforts against ex-CEOs roil D&O market?Chastened chas·ten tr.v. chas·tened, chas·ten·ing, chas·tens 1. To correct by punishment or reproof; take to task. 2. To restrain; subdue: chasten a proud spirit. 3. by restatements and shareholder lawsuits, a number of major companies have been seeking to recoup money paid out to former CEOs and other top executives in bonuses. This kind of "clawback Clawback 1. Previously given monies or benefits that are taken back due to specially arising circumstances. 2. A retraction of stock prices or of the market in general. Notes: 1. " effort, in turn, could trigger new insurance considerations, especially in the directors and officers' (D&O) segment. Consider some recent developments: * Fannie Mae's federal regulator is seeking to recoup $100 million in "performance" bonuses paid to former executives at the mortgage giant. * American International Group
American International Group, Inc. (AIG) (NYSE: AIG; TYO: 8685 ) is a major American insurance corporation based in New York City. (AIG AIG addressee indicator group (US DoD) AIG American International Group, Inc AiG Answers in Genesis (religious group in defense of Scripture) AIG Artificial Intelligence Group AIG Australian Industry Group ): Under former CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Maurice "Hank" Greenberg, the company overstated o·ver·state tr.v. o·ver·stat·ed, o·ver·stat·ing, o·ver·states To state in exaggerated terms. See Synonyms at exaggerate. o its 2000-04 net income by $4 billion. At the same time, Greenberg received $24.5 million in bonuses. In 2005, AIG sued for control over $20 billion worth of AIG shares owned by a firm that Greenberg runs, but it has yet to recoup any of the bonus money. * Bristol-Myers Squibb Bristol-Myers Squibb (NYSE: BMY), colloquially referred to as BMS, is a pharmaceutical corporation, formed by a 1989 merger between pharmaceutical companies Bristol-Myers Company, founded in 1887 by William McLaren Bristol and John Ripley Myers in Clinton, NY (both were : Under former CEO Charles Heimbold, the company overstated its 1999-2001 revenue by $2.5 billion and profit by $900 million. At the same time, Heimbold received $6.4 million in bonuses. The company hasn't been able to collect on those bonuses, but has since adopted a policy to recoup bonuses if executive misconduct leads to a restatement. * Qwest Communications
The term "clawback" itself is relatively new to executive compensation, but has been frequently used in efforts to recoup money from mutual fund managers or real estate developers. Don Glazier, an executive with Integro Insurance Brokers, sees a situation where lawsuits--perhaps some of them derivative suits, in which the companies also would be potential beneficiaries--could mushroom, putting company officers who granted the bonuses at risk. "If this becomes a trend, and suits are filed, there is a potential hole in insurance coverage that won't respond," Glazier says. "Some carriers may have to adopt an aggressive attitude toward exclusions. At minimum, there will be some gray areas, and some coverage litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. . This would be a new risk that the carriers did not anticipate." Principal carriers of D&O insurance include AIG, St. Paul Travelers Cos., Chubb and XL Insurance, Glazier notes, and "there is a ton of capacity. Pricewise, it's a flat to softening market." But the exclusion issue could become big, especially if there are claims related to unwarranted bonuses, perceptions of ill-gotten gains and when or if former executives would have to give those back. Plaintiffs' attorneys are going to look closely at what's coming out in upcoming company proxies, and will be keeping an eye out for "egregious cases," Glazier adds. While Sarbanes-Oxley anti-fraud provisions "may not provide much ammunition, this area is new, and no one really knows what to expect." [ILLUSTRATION OMITTED] |
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