The nature of Goldman’s role in the scheme was already known, but the detailed accounts compiled by regulators around the world — the U.S. Justice Department, New York’s financial regulator, the Federal Reserve, the S.E.C., British watchdogs, and securities regulators in Hong Kong and Singapore — still made for uncomfortable reading. They formed the basis of a case in which the bank admitted it was guilty of a crime before a U.S. judge for the first time in its 151-year history.
Goldman will claw back $174 million in pay to past and present executives, a dramatic move that generated the most headlines related to the settlement. In recognition of the “magnitude” of the scandal, Goldman’s board said in a statement, it will forfeit some compensation awarded the top executives at the time, including C.E.O. Lloyd Blankfein, C.O.O. Gary Cohn and C.F.O. David Viniar. It will also cut pay this year for the current chief executive, David Solomon, and his top lieutenants.
It is “an important reminder that we are all responsible for each other’s actions, including our collective failures,” Mr. Solomon said.
“It goes with the responsibility of leadership to accept some consequences for things that go wrong on your watch,” said Mr. Blankfein, who retired in 2018.
Will this deter executives from future wrongdoing? “The important point is that taking money out of a human’s pocket is more effective than taking money out of a corporation’s bank,” said Joseph Grundfest, a Stanford law professor and a former S.E.C. commissioner. “Dollar for dollar,” he told DealBook, personal punishment is bound to have an impact. It also helps soften the blow for shareholders, who will pay the bulk of the fines.
Since the 2008 financial crisis, most large companies have introduced clawback policies. JPMorgan’s “London Whale” trading mishap and Wells Fargo’s fake-account scandal set off such actions for the executives in charge at the time. But has corporate malfeasance fallen meaningfully as a result of these policies? Critics say it hasn’t, in part because many clawback policies are narrowly written and don’t cover all aspects of pay.
“Companies are trying to show they’re doing the right thing,” said Jonathan Ocker, a partner and executive pay expert at the law firm Pillsbury Winthrop. Voluntary adoption of expansive clawbacks are part of Corporate America’s movement to become responsible citizens, he told DealBook. In his view, they are “appropriate and useful” when it comes to deterrence.
But Mr. Ocker admits the cynic in him sees how it might be hard to believe that very wealthy executives truly feel the sting (the C.E.O. of Goldman Sachs has routinely earned more than $20 million a year). Even if it’s all about appearances, it’s still a good look for corporate governance purposes.
Goldman’s action “will put wind in the sails of the emerging trend,” Mr. Ocker predicted. Policies that recoup pay and bonuses for reputational harm, “particularly related to a failure to supervise,” could become more common, he said. It’s not required by law, but shareholders may demand it. And if top executives aren’t deterred by a dent in their wallets, the social stigma of a penalty for management failings may be more powerful motivation for those driven by pride and prestige.