Title: Great expectations: a regulatory promise unfulfilled

Authors: Mary Claire Mahaney; Murray Bryant

Addresses: District of Columbia Bar, 6759 Towne Lane Road, McLean, VA 22101, Washington, DC, USA ' Western University, 1255 Western Road, London, Ontario, N6G 0N1, Canada

Abstract: The primary goal of the US Securities and Exchange Commission (SEC) is to protect investors by deterring wrongdoing resulting in investor loss. The SEC deters wrongdoing in two ways: by threatening penalties and signalling illegal behaviour. If the SEC does not hold individuals accountable or if it is unclear what actions are illegal, wrongdoing will continue. Consent decrees have become the SEC's enforcement norm. Through negotiation both the defendant and the agency avoid costs and save time, but individuals responsible for wrongdoing have largely avoided personal accountability. Although firms have introduced clawback provisions into executive contracts, evidence shows that boards of directors largely have not activated clawbacks. Boards must hold employees personally responsible; thus boards should design executive contracts that clearly state the rationale for clawbacks and a means by which their amounts - amounts both fair and in the best interests of the corporation - can be established.

Keywords: Securities and Exchange Commission; SEC; regulatory; consent decree; neither admit nor deny; corporate governance; executive compensation; clawback; board; director; employee; fiduciary; wrongdoing; risk; accounting; critical accounting.

DOI: 10.1504/IJCA.2018.091175

International Journal of Critical Accounting, 2018 Vol.10 No.1, pp.15 - 41

Received: 21 Jun 2017
Accepted: 03 Oct 2017

Published online: 13 Apr 2018 *

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