The public markets are known to punish the stock prices of companies that announce the need to restate their past financial results. The stock price decline tends to morph into devastation when a financial restatement arises from executive fraud or misconduct. From a governance perspective, shareholder groups and boards of directors have been embracing a deterrent policy that could be called a “restatement clawback,” because it enables companies to claw back cash bonuses and stock awards from executives whose fraud or misconduct leads to a financial restatement.
Within the past year, major companies such as Bristol-Myers Squibb Co., Citigroup Inc., Eastman Kodak Co., General Motors Corp., the Interpublic Group of Cos. and Monsanto Co. have established policies of this kind. The policies of Citigroup and General Motors are some of the most stringent in terms of the forms of compensation subject to the clawback and other punitive effects the clawback policy will have on executives subject to that policy, while the Monsanto policy is one of the most stringent in terms of the number of subject executives.
