Goldman board demands accountability with widespread 1MDB clawbacks | Article

The clawbacks, ordered by the firm’s board of directors, are part of the fallout from Goldman Sachs’ settlement on charges that it conspired to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) related to three bond offerings the firm had structured and arranged for Malaysia’s state development fund 1MDB. Goldman Sachs says it has spent the past five years implementing sweeping improvements to its compliance and internal controls systems as a result of the scandal.

“This is a shrewd move by Goldman’s board to demonstrate they are holding their executive team accountable for a culture of integrity,” said Michael Ward, partner at the law firm Vinson & Elkins and a former chief compliance officer. Ward said the clawbacks send a signal throughout the organization that executives will be held accountable for actions that occur under their stewardship. It sends a message to investors and regulators that Goldman Sachs is committed to a culture of accountability going forward, he said.

The aftermath of a compliance failure of this magnitude led to soul-searching by Goldman Sachs CEO David Solomon and the board, which decided to pass along at least some of the financial pain suffered by the institution itself onto current and former executives.

“The signal the board is sending is an institutional warning to everyone at Goldman. Every executive at every level must raise their hand if they see something improper, and if necessary, must stop it.”

Michael Weinstein, Member, Cole Schotz P.C.

“The Board’s announcement is an important reminder that we are all responsible for each other’s actions, including our collective failures,” Solomon said.

The largest portion of the executive compensation sought to be refunded by the Goldman Sachs board is $76 million from former executives who have been charged or disciplined in connection with the wrongdoing.

The firm will seek to claw back compensation from Tim Leissner, the former Southeast Asia chairman and participating managing director of Goldman Sachs, who pleaded guilty to conspiring to launder money and to violate the FCPA; Ng Chong Hwa, also known as “Roger Ng,” former managing director of Goldman and head of investment banking for GS Malaysia, who has been charged with conspiring to launder money and to violate the FCPA; and Andrea Vella, who in February was prohibited from participating in the banking industry by the Federal Reserve for “unsafe and unsound practices in connection with the bond offerings.” About $24 million of the $76 million is currently being held by Goldman Sachs, the company said.

Going after executives accused of crimes is usually how corporate clawback attempts work. But Goldman Sachs went further.

“In acknowledgement of the firm’s institutional failures,” the board said it will seek to recoup $67 million in long-term performance incentive awards made to five former senior executives. The executives, some of whom have retired, include the former CEO, former COO, former CFO, the former vice chairman who headed Goldman Sachs International, and another former vice chairman who was the global head of growth markets.

And Goldman Sachs went after the pay of its current executive leadership team—the CEO, chief operating officer, and chief financial officer, as well as the current CEO of Goldman Sachs International—by reducing their overall compensation by $31 million for 2020.

Michael Weinstein, a member at the law firm Cole Schotz P.C., said seeking clawbacks from so many executives struck him as most unusual—perhaps unprecedented.

“The signal the board is sending is an institutional warning to everyone at Goldman,” he said. “Every executive at every level must raise their hand if they see something improper, and if necessary, must stop it.”

Corporate attempts to retrieve money already paid to executives who are accused of malfeasance is rare, although when it happens, it gets…