Download this Paper Open PDF in Browser

Servants of Two Masters? The Feigned Hysteria over Activist-Paid Directors

Yaron Nili, Servants of Two Masters? The Feigned Hysteria over Activist-Paid Directors, 18 J. Bus. L. 509 (2016)

Univ. of Wisconsin Legal Studies Research Paper No. 1389

65 Pages Posted: 8 Aug 2015 Last revised: 12 Jul 2016

Yaron Nili

University of Wisconsin Law School

Date Written: February 6, 2015

Abstract

Directors of U.S. public firms have been paid for their directorship exclusively by the company in which they serve. Recently, however, activist investors have asked shareholders to elect director-candidates who received a lucrative compensation package from the activist in addition to their compensation arrangement with the company. Incumbent managers and their defenders, such as Wachtell, Lipton, have sharply condemned this practice, terming it a ‘Golden Leash’ that subjects the nominated director to the activist’s control. I explain why these critics are mistaken. Activist-paid directors can be expected to improve corporate performance at poorly performing firms, and the cost of such arrangements, if any, is likely to be much lower than that of similar arrangements that are already widely used throughout corporate America and are welcomed by these critics.

Keywords: Directors, Shareholder Activism, Hedge Funds, Compensation, Corporate Governance, Golden Leash

JEL Classification: G30, K22

Suggested Citation

Nili, Yaron, Servants of Two Masters? The Feigned Hysteria over Activist-Paid Directors (February 6, 2015). Yaron Nili, Servants of Two Masters? The Feigned Hysteria over Activist-Paid Directors, 18 J. Bus. L. 509 (2016); Univ. of Wisconsin Legal Studies Research Paper No. 1389. Available at SSRN: https://ssrn.com/abstract=2640736

Yaron Nili (Contact Author)

University of Wisconsin Law School ( email )

975 Bascom Mall
Madison, WI 53706
United States

Paper statistics

Downloads
354
Rank
70,689
Abstract Views
1,062