In proposing the clawback rules for stock exchanges mandated by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Securities and Exchange Commission evinces little regard for contrary provisions in existing contracts:

Further, we do not view inconsistency between the proposed rule and rule amendments and existing compensation contracts, in itself, as a basis for finding recovery to be impracticable, because issuers can amend those contracts to accommodate recovery.

(footnote omitted).  In making this assertion, the SEC either chose to ignore or failed to consider fundamental principles of contract law.  Modification of an existing contract generally requires (at least in California) both mutual assent and consideration.  American Building Maintenance Co. V. Indemnity Ins. Co., 214 Cal. 608, 615 (1932).   Moreover, most written contracts, including executive employment and indemnification agreements, include a provision along the following lines:

No provisions of this Agreement may be modified, waived or discharged except by a written document signed by a duly authorized Company officer and Executive.

Similarly, corporate bylaws often include the following provision:

Any repeal or modification of this Article VIII [governing indemnification] shall not change the rights of an officer or director to indemnification with respect to any action or omission occurring prior to such repeal or modification.

What makes the SEC believe that an issuer can unilaterally amend an existing contract or that a former executive would agree to an amendment requiring the return of previously received compensation?

Fête Nationale 14 July