Dodd-Frank Whistleblower and Clawback Provisions to Affect Directors and Officers
Published: May 13, 2011 | Country: United States
| Comments: 2
Directors and officers may be directly affected by the whistleblower and “clawback” provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), which raise concerns about the coverage provided by their liability insurance programs.
The whistleblower protection provision of Dodd-Frank is especially notable, as the provision establishes a potential bounty to individuals reporting “original information” to the Securities and Exchange Commission (SEC) regarding securities violations within their company(ies).
Policyholders and brokers need to pay particular attention to a D&O policy’s insured versus insured exclusion, personal conduct exclusions, the definition of loss, and investigation coverage.
“Corporations’ ongoing quest for better internal controls is now somewhat weighed down by a form of negative reinforcement of avoiding increased SEC investigation activity,” noted Steve Cohen, senior vice president, Marsh FINPRO. “Companies will have to establish procedures to comply with Dodd-Frank’s clawback provision—there are still a number of issues to clarify, including the beginning of the three-year period, definition of “executive officer,” and definition of incentive-based compensation.”
Additionally, Dodd-Frank’s compensation “clawback” provision requires a company to disclose of its policies on incentive-based compensation and establish a policy to recover (claw back) any amount of incentive-based compensation paid to any current or former executive that exceeds the amount which would have been paid under an accounting restatement in the three years prior to the date on which the company was required to prepare the restatement.
A company that fails to comply with these requirements risks being de-listed from its exchange.
Marsh’s claims advocates and client advisors continue to monitor this fluid process, and are available to discuss a company’s D&O exposures and any consequent issues.