June 26, 2017
Clawbacks: How Much Misbehavior is Necessary?
– Liz Dunshee
Last month, an institutional investor sued United – demanding the board recover $37 million paid to former executives who participated in a 2011 bribery scheme. United’s board says clawing back severance would hinder its ability to recruit executives & cause competitive harm. Some people think the board was initially reluctant to claw back severance because it wanted the departed executives to cooperate in the related DOJ investigation.
Either way, it begs the question of how far a CEO would have to go before they’re denied severance or it’s clawed back. This NY Times article describes the circumstances:
You may recall this inquiry: It centered on United’s reinstatement of a money-losing air route between Newark Liberty International Airport and Columbia, South Carolina. United had canceled the route but re-established it at the behest of David Samson, then the chairman of the Port Authority of New York and New Jersey, who had a vacation home near Columbia.
Mr. Samson, whose position gave him great sway over Newark Airport, wanted access to convenient flights to his second home. He had threatened to bar United from building a crucial hangar on-site if it did not start flying to Columbia.
Mr. Smisek, United’s CEO, didn’t report this pressure. Instead, federal investigators said that he approved the restoration of the route “outside of United’s normal processes.” The same day, the Port Authority approved the airline’s hangar project. In 2015 – after the scandal came to light & the route had lost almost $1 million – Smisek & other involved executives departed United with significant severance packages.