| Summary: | 碩士 === 東吳大學 === 法律學系 === 106 === Activist hedge funds in the United States have been experimenting with a contentious practice during elections for corporate directorship: offering compensation for their candidates for the board of directors millions of dollars in bonus pay through an arrangement known as “the Golden Leash.” The hedge funds usually pay their nominees in consideration for their agreement to serve as nominees. In addition, if appointed to the board by election, the nominees would receive a second payment, and additional compensation based on the performance of target companies during their board tenures.
The emergence of the Golden Leash is highly controversial that met with strong reactions. Opponents argue that such arrangements provide an incentive for the directors to favor the interests of the shareholder that is paying him or her rather than the interests of all shareholders. A director compensated by third parties should not be seen as an “independent” director. Furthermore, such third party payments would reduce cohesiveness by setting up two classes of directors while they doing the same job but being paid differently. A third concern raised by opponents revolves around short-termism. Opponents of activism argue such arrangements over-incentivize directors to deliver short-term results at the expense of long-term value. Yet another group considers that the Golden Leash facilitates the recruitment of high-quality board candidates to run in director elections that are unpleasant, and it operates as a commitment mechanism. Supporters also counter that the argument regarding board cohesiveness and fragmentation of the board is far from considering how boards are comprised and other circumstances. Supporters next challenge the logic behind activists interventions produce short-term improvements in performance at the expense of long-term performance by empirical researches.
Despite a group of scholars, companies and their lawyers raised concerns regarding the independence of the nominees, board cohesiveness and short-term risk, this article strives to debunk some of the assumptions by presenting the benefits activist-paid directors might provide. This article also responds to the arguments against such pay arrangement. In addition, this article briefly overviews details of two similar regulations: the proxy access of the United States and regulations of director’s nomination in Taiwan. By comparing similarities and the differences between the proxy access and regulations of director’s nomination, this article further points out the distinctly difference lies in ownership structure between Taiwan and the US. This article therefore concludes that with properly designed and disclosed, the Golden Leash can serve not only as an important check on underperforming incumbent directors but promote other values important to sound corporate governance. Most importantly, this study seeks to contribute to attaining the policy goals for introducing the Golden Leash in Taiwan, and attract more commentators to discuss the legal regulation of the
Golden Leash.
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