July 10, 2015 -- George S. Georgiev of the Lowell Milken Institute was cited in a Bloomberg BNA
article summarizing reactions by legal experts to new rules on executive compensation clawbacks proposed by the Securities and Exchange Commission.
“It will lead to a lot of disruption,” predicted George Georgiev, an assistant adjunct professor at the University of California, Los Angeles School of Law who is studying the impact of clawback provisions in various countries.
Under the proposal, U.S. companies and FPIs would have to develop and enforce policies to recover improperly awarded incentive-based compensation from current and former executives where there is an accounting restatement to correct a material error.
Georgiev observed that there are about 960 foreign entities listed on U.S. exchanges that include some of the most well-known multinationals. The SEC's decision in the proposal to cover FPIs was unexpected, especially given their exemption from prior executive compensation rulemakings, including say-on-pay, employee hedging and pay-for-performance, he said.
One problem with including FPIs is that they report under international financial reporting standards while U.S. issuers use U.S. generally accepted accounting principles, Georgiev noted. The standards differ as to when companies must restate their financials.
Ultimately, that could make a U.S. listing less attractive for foreign companies, Georgiev said. “If foreign companies are on the margins of trying to decide whether to retain their U.S. listing, this may be a factor against maintaining” that listing, he said, adding that those trying to decide whether to list in the U.S. may now find other jurisdictions more desirable.
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