Servants of Two Masters?

Recently, activist investors have asked shareholders to elect director-candidates who receive 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. They argue that the payment of incentive compensation by a sponsoring shareholder establishes a two-tiered compensation structure for the board, creates dissension and lack of cohesion in the boardroom, and fosters continuing allegiances between the director and the activist shareholder following the election therefore calling into question the independence of the director.

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