The Financial Times published the following letter to the editor from Phillips & Cohen partner Erika Kelton.
CEOs would pay attention to bonus clawbacks
Sir, Brooke Masters suggests that unpredictable, "lightning strike" fines will scare big banks straight. That is unlikely. As long as fines - predictable or unpredictable - fall well short of the aggregate harm egregious frauds cause investors and markets, even jaw-dropping penalties such as those imposed on banks in the currency rate rigging scandal will have little impact and will remain simply "the cost of doing business".
As a whistleblower lawyer, I have seen this in the pharma industry where companies have repeatedly engaged in fraudulent schemes despite billions in fines.
To break the cycle of big-bank recidivism, we need to motivate those in the executive suites to establish compliant corporate cultures, rather than cultures that reward profitmaking no matter how it is done.
Regulators should implement aggressive clawbacks that strip executives of bonuses when their companies engage in serious wrongdoings. Chief executives, who are now willing to look the other way and point the finger at those below them when caught, will be far more likely to ensure a compliant culture if they must hand back millions from their own bank accounts when frauds occur on their watch.
May 29, 2015