Volume 95 - No. 1 Supplement

In the Shadow of the Omnipresent Claw

As the American economy continues to totter against an ever-growing populist momentum, it seems likely that claw- back mechanisms of various sorts will be put to increasing use in the coming months and years.1 Very generally, a clawback attempts to regain previously conferred monies or benefits fol- lowing a certain triggering event, usually involving some change in circumstances. In a sense, clawbacks offer the oppor- tunity for a “do-over”—a convenient antidote to both the uncer- tainty that characterizes American financial markets and the calls for accountability that grow louder with each corporate misstep, real or perceived.2 Yet, as Professors Cherry and Wong note in Clawbacks: Prospective Contract Measures in an Era of Excessive Executive Compensation and Ponzi Schemes (the “Ar- ticle”), the term clawback “has been subject to neither rigorous analytical scrutiny nor definition and exposition.”3 Against this backdrop, the authors’ undertaking to advance a so-called doc- trine of clawbacks is both bold in its aspiration and laudable in its result. The Article succeeds in establishing a firm founda- tion for additional examination and discovery and highlights the importance of clear rules of the road to guide all market participants.

This Response (the “Response”) attempts to bolster and improve upon the still nascent discussion surrounding claw- backs. Moreover, the Response challenges Professors Cherry and Wong, and the academic community more broadly, to ad- dress a number of questions that remain unsettled. It seems in- tuitive that the retroactive imposition of clawbacks, by legisla- tion or otherwise, is less desirable than more prospective efforts.4 Yet, the complexity of the subject matter demands more than a reflexive call for the organic inclusion of clawback provisions in investment contracts or compensation agreements as a matter of course.

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