Alan Johnson, managing director of New York-based Johnson Associates, said pursuing clawbacks—which he dubbed the “nuclear weapon” of pay disputes—requires careful consideration.

“If you get into these personal, behavioral issues it just gets really tricky,” Johnson said. While embarrassing episodes such as an extramarital affair, DUI, or personal bankruptcy might raise red flags, Johnson said boards must take into account “honest mistakes.”
Otherwise, companies run the risk of stifling meaningful communication with draconian responses.

“If you make the punishment so severe and so dramatic, are you going to get actual less reporting of the things that you’re trying to stop?” Johnson said, adding, “If everything is the death penalty, then perhaps the problem grows exponentially.”

Cluttering up contracts with an endless laundry list of possible infractions would probably be counterproductive, Johnson warned. Still, he sees the value in having shareholders voice their wishes via environmental, social, and corporate governance initiatives.

“I think this commentary and criticism is helpful,” he said.

Bloomberg Law / November 6, 2019