Law Commons^™

Rethinking Chutes: Incentives, Investment, And Innovation, Simone M. Sepe, Charles K. Whitehead

Charles K Whitehead

Eighty-two percent of public firms have golden parachutes (or “chutes”) under which CEOs and senior officers may be paid tens of millions of dollars upon their employer’s change in control. What justifies such extraordinary payouts? Much of the conventional analysis views chutes as excessive compensation granted by captured boards, focusing on the payouts that occur following a takeover. Those explanations, if they ever were complete, miss the mark today. This Article demonstrates, theoretically and empirically, that chutes are less relevant to a firm during a takeover than they are before a takeover, particularly in relation to firms that invest in …

Intrafirm Monitoring Of Executive Compensation, Robert J. Rhee

Vanderbilt Law Review

This Article argues that employees should serve as intrafirm monitors of executive performance and pay. Employees and shareholders, labor and capital, can monitor executive performance and pay at different levels. Diffuse, diversified, and short durational shareholders currently monitor performance and pay through the market mechanism of public disclosures and share price. Employees can add an effective layer of monitoring by leveraging private information. Employees possess the corporation's entire information content; the assessment derived from this content would be relevant to the board's assessment of executive performance and pay. Corporate employees are also a major constituent of the corporate system and …

How Delaware Law Made Appeal To Revive Gm Ignition Switch Suit A Non-Starter, Paul Regan

Paul L Regan

How Corporate Governance Is Made: The Case Of The Golden Leash, Matthew D. Cain, Jill E. Fisch, Sean J. Griffith, Steven Davidoff Solomon

All Faculty Scholarship

This Article presents a case study of a corporate governance innovation—the incentive compensation arrangement for activist-nominated director candidates colloquially known as the “golden leash.” Golden leash compensation arrangements are a potentially valuable tool for activist shareholders in election contests. In response to their use, several issuers adopted bylaw provisions banning incentive compensation arrangements. Investors, in turn, viewed director adoption of golden leash bylaws as problematic and successfully pressured issuers to repeal them.

The study demonstrates how corporate governance provisions are developed and deployed, the sequential response of issuers and investors, and the central role played by governance intermediaries—activist investors, institutional …

Corporate Darwinism: Disciplining Managers In A World With Weak Shareholder Litigation, James D. Cox, Randall S. Thomas

Faculty Scholarship

Because representative shareholder litigation has been constrained by numerous legal developments, the corporate governance system has developed new mechanisms as alternative means to address managerial agency costs. We posit that recent significant governance developments in the corporate world are the natural consequence of the ineffectiveness and inefficiency of shareholder suits to address certain genre of managerial agency costs. We thus argue that corporate governance responses evolve to fill voids caused by the inability of shareholder suits to monitor and discipline corporate managers.

We further claim that these new governance responses are themselves becoming stronger due in part to the rising …