Should Publicly Traded Companies Disclose Whether Executives or Shareholders Pay the Company's Fines? (S. 1912)

What is S. 1912?

(Updated October 6, 2019)

This bill would require publicly traded companies to disclose in their annual reports and proxy statements whether a company has established procedures to recoup compensation executive officers to pay for fines or penalties assessed to the corporation. Companies would be required by the Securities and Exchange Commission to disclose the amount recouped from any executive officer during the three most recent fiscal years. If a company hasn’t established such procedures, it would be required to provide an explanation of why they aren’t beneficial for the company’s shareholders.

Argument in favor

Senior executives need to take more responsibility for fines levied against their corporation that they’re accountable for. That means giving up some of their compensation so shareholders don’t have to foot the bill.

Argument opposed

Corporations as a whole should be responsible for paying fines and penalties assessed against them, they shouldn’t be “encouraged” by the SEC to make executives foot the bill.

Impact

Shareholders; publicly traded companies; senior executives; and the SEC.

Cost of S. 1912

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sponsoring Sen. Jack Reed (D-RI) introduced this bill to require publicly traded companies to disclose policies on whether senior executives or shareholders bear the costs of paying the company’s fines and penalties:

“Senior executives, many of whom are eager to take credit for a company’s good news, must also take more responsibility for the bad news, especially if it is true that the buck stops with them. For example, the Financial Crisis Inquiry Commission concluded ‘the financial crisis reached cataclysmic proportions with the collapse of Lehman Brothers,’ and yet, according to the Congressional Research Service, not a single senior executive officer at Lehman Brothers at the federal level was charged, went to jail, or personally paid a federal fine or penalty for the damage caused at Lehman Brothers that rippled through our economy in 2008.  Companies must do a better job of aligning executive incentives so that they are motivated to put their shareholders, and not themselves, first.”

Media:

• Sponsoring Sen. Jack Reed (D-RI) Press Release