March 1, 2019
More on “Clawbacks: How Much Misbehavior is Necessary?”
– Liz Dunshee
A couple weeks ago, the Delaware Court of Chancery dismissed a derivative suit that alleged the directors of United Airlines breached their fiduciary duties by not clawing back severance paid to a former CEO who was under federal investigation for participating in a bribery scheme. The suit was filed almost two years ago and related to severance paid in 2015 – which at this moment feels like a different era in terms of public tolerance of CEO misconduct. I wrote at the time:
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.
So with the dismissal, that question will remain unresolved in this particular case. This Goodwin memo (scroll down) explains that the suit was dismissed because the plaintiff failed to show any conflicts of interest among the members of the special committee that considered & responded to the clawback demand.