BlackRock, the US based global asset manager, recently published its updated Proxy Voting Guidelines for US Securities. The guidelines set out a detailed discussion on seven key issues, covering: boards and directors; auditors and audit-related issues; capital structure; mergers, asset sales and other special transactions; executive compensation; environmental and social issues and general corporate governance matters. This alert focusses on BlackRock’s broadening of its policy on clawback provisions.
In the previous version of the voting guidelines, the clawback provision covered recoupment of bonuses paid to executives where the bonus was ‘based on financial results that are later restated or were otherwise awarded as a result of deceptive business practices’.
In the revised clawback policy, BlackRock supports a much broader clawback provision that not only covers all compensation paid to a senior executive due to faulty financial reporting and deceptive practices but also covers executive behaviour which causes harm to the shareholders and company. This includes behaviour by an executive which results in financial loss to shareholders, reputational damage to the company or a criminal investigation. The action need not result in a restatement of the company’s accounts. In addition, the policy supports clawback of compensation paid under a settlement agreement arising from such behaviour and paid for directly by the company.
As probably the largest global asset management company, announcements by BlackRock not only affect the companies in which BlackRock invests but will also be taken in to account by other institutional investors and their advisers. It demonstrates that it makes good business sense for companies to ensure that their malus and clawback provisions extend at least to cover corporate failures and scandals. The recent public scrutiny of the Carillion clawback policy is a salutary example of the criticism that will be levelled at companies which do not have robust clawback policies in place.
If you have any questions or comments regarding this alert, please do get in touch.
Janet and Sharon