Economy Cleanup: Clawback to the Future

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Illustration by Harry Campbell for TIME

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Still, Lehman and other firms were once structured in a way that made employees think long and hard about risk. They were partnerships, and partners couldn't cash in until they'd been on the job for decades. This amounted to an implicit clawback system, with the other partners doing the clawing. The partnership model began to break down in 1970, when upstart Donaldson, Lufkin & Jenrette sold shares to the public. Merrill Lynch followed a year later, and in 1999 Goldman Sachs was the last big firm to go public. Perhaps that was all a mistake. "It's a radically regressive idea, but I honestly think Lehman Brothers would have been better off as a partnership," says Christopher McKenna, a reader in business history at Oxford University's Saïd Business School. "How do you hold these people accountable? The answer is partnership."

Can that clock be turned back? It depends partly on Congress but mainly on financial markets. If they come roaring back over the next few years, the whole clawback conversation will probably be forgotten. If they don't, investment banks and hedge funds will have to reinvent themselves to win back investors. Partnerships will make a comeback. Hedge funds will stop charging investors 20% fees. And clawbacks will be everywhere.

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