Golden Leash Arrangements: A Legal and Policy Analysis

By Mihalik, Andrew | University of Toronto Faculty of Law Review, Winter 2016 | Go to article overview

Golden Leash Arrangements: A Legal and Policy Analysis


Mihalik, Andrew, University of Toronto Faculty of Law Review


  I   INTRODUCTION                                          51  II   THE CASE OF GOLDEN LEASHES                            52 III   THE SHAREHOLDER FRANCHISE                             54  IV   THE PRIMA FACIE LEGALITY OF GOLDEN LEASHES            58       I. Conflicts of Interest and the Fiduciary Duty       59       II. Director Independence                             66   V   GOLDEN LEASHES AND THE PUBLIC INTEREST                73       POWER       I. The Public Interest Power                          74       II. Inherently Abusive Golden Leash Arrangements      77       III. Use of the Public Interest Power in Connection   83            with Post-Election Transactions       IV. Limits of the Public Interest Power               84  VI   POLICY RECOMMENDATIONS                                87 VII   CONCLUSION                                            88 

I INTRODUCTION

It is common practice for activist shareholders proposing a slate of dissident nominee directors to pay their dissident nominees a flat fee and to indemnify them for legal liability in consideration for standing election. (1) In several recent proxy contests, however, activists have entered into special compensation arrangements with their dissident nominees under which they have agreed to provide their nominees a share of the profits realized on their position in the target company after a fixed period of time, should the nominee be elected.

These arrangements, commonly referred to as "golden leashes", have given rise to several criticisms. Some have referred to the tactic as "egregious" and called for corporations to institute by-laws that would disqualify nominee directors party to these special compensation arrangements from standing for election. (2) Others have concluded that "if this nonsense is not illegal, it ought to be". (3) This article argues that the concerns motivating these responses are sufficiently serious to merit attention from securities regulators. However, given the fundamental importance of the ability of shareholders to elect directors, golden leashes should remain prima facie legal and only attract regulatory intervention under certain conditions.

Part 2 presents a case study of the 2012-2013 proxy contest between (ana Partners, LLC ("Jana") and Agrium Inc. ("Agrium") in which [ana entered into golden leash agreements with its dissident nominees. The facts of this case will inform the legal analysis put forth in Parts 4 and 5.

Part 3 outlines the statutory right of shareholders to vote on the corporation's board of directors, including via proxy contests. In so doing, Part 3 advances a theory of the corporation that is premised on the ability of shareholders to exercise their rights of enfranchisement. Given the importance of the shareholder franchise in corporate affairs, any regulatory rule or corporate by-law that limits this right should be treated cautiously.

Part 4 considers the common theoretical and policy objections to golden leash arrangements, and supplements this discussion with an analysis of these arrangements from a legal perspective. Part 4 concludes that, even if golden leashes do not appear to breach positive law, they raise concerns of sufficient seriousness to merit their scrutiny.

Although corporate governance in general and proxy contests in particular have historically been the domain of corporate law, Part 5 argues that intervention by securities regulators is justified in light of their concerns regarding the shareholder franchise and investor protection. Part 5 further argues that the public interest power is uniquely well-suited to facilitate such intervention, since it affords regulators the means of protecting investors without impacting the shareholder franchise in the way an outright ban on golden leashes would.

Part 6 offers two normative policy recommendations for securities regulators to supplement the role of the public interest power in matters relating to golden leashes. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Golden Leash Arrangements: A Legal and Policy Analysis
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.