Ethical Obligations and Decision-Making in Accounting 2nd Edition by Steven Mintz, Roselyn Morris

Exercise 6

On July 23, 2009, the Securities and Exchange Commission for the first time ordered an executive to return compensation awarded during years the company misstated financial results -- even though the executive himself wasn't accused of wrongdoing. In a step that could have broader repercussions, the SEC told Maynard L. Jenkins, the former chief executive of CSK Auto Corp., to give the company back more than $4 million in bonuses and equity compensation he'd earned between 2002 and 2004. Those were years during which the Phoenix auto-parts retailer engaged in fraudulent accounting that boosted its pre-tax income by a total of $66 million, the SEC alleged. CSK restated its earnings for those years twice. The civil action, filed in U.S. District Court in Arizona, represents the SEC's boldest test of the ``clawback'' provision of the 2002 Sarbanes-Oxley securities-reform law. That provision requires CEOs and chief financial officers to return incentive and equity compensation when companies restate results because of misconduct.

Do you think it is ethically appropriate for the SEC to be able to “claw back” CEO and chief financial officer incentive and equity compensation when companies restate results because of misconduct even if they were not personally involved in any wrongdoing?

Step 1 of 3

Claw-back:

Claw-back is a provision under which money must be returned to the employer or the organization that had been paid.