Conference Call on the Implications of the Wells Fargo Scandal for Boards, CHROs Focuses on Awareness, Assessment

December 09, 2016

This week, the Association's Center On Executive Compensation sponsored an Association-wide conference call on how Boards, chief human resource officers, and management teams mitigate the potential for risk in compensation plans below the executive level, as a reaction to the Wells Fargo scandal.  During the call, moderated by the Center's Charlie Tharp, Betsy Holden, Senior Advisor, McKinsey & Company, who is the Chair of the Western Union Compensation and Benefits Committee and also sits on the Boards of Diageo, plc and Time Inc., discussed the mechanisms by which the boards she sits on oversee an extensive review of enterprise risks and how they align with incentive plans to ensure programs do not lead to undue risk. She stressed the importance of ensuring the appropriate linkages between the audit and compensation committees so that internal audit is reviewing and certifying incentive plan attainment and that signals of potential risks arising in one context, such as ethics hotline complaints, can be reviewed with respect to compensation plans.  Former SEC Commissioner Troy Paredes, founder of Paredes Strategies, LLC, explained that in addition to making sure that employees are being incentivized "to do the right things in the right way," companies need to pay attention both to the motive and the opportunity behind incentives and whether culture or other signals are compelling employees to achieve a certain result.  He also noted that companies and their Boards need to evaluate political risk—how business decisions are perceived in Washington—in light of the Congressional reaction to both Wells Fargo and the Mylan EpiPen pricing scandal.  Bob Simon, a shareholder with the Vedder Price firm who counsels companies, executives and Boards of Directors on executive compensation matters, noted that given that these issues have garnered considerable attention, it is still important that companies reinforce the respective roles of the Board, which is to monitor and evaluate senior management, providing guidance where necessary and ensuring that the company’s values are incorporated into the strategy. In contrast, he noted that the role of the management is to execute the strategy and run the day-to-day business.