Golden Leash

AAA

DEFINITION of 'Golden Leash '

Special incentives offered to directors being nominated to serve on the board of a company by a major shareholder. A golden leash is designed to offer an incentive to the nominee directors to act in the interests of the major shareholder, which is typically an activist hedge fund or other institution that is seeking to introduce major change in the target company’s strategic direction. 

INVESTOPEDIA EXPLAINS 'Golden Leash '

The concept of a golden leash is criticized by proponents of sound corporate governance, since special incentives offered to directors may compromise their independence and lead them to favor their backer’s agenda, rather than serve in the best interests of all shareholders.

The term “golden leash” has become part of popular financial parlance following the acrimonious proxy fight between Canadian fertilizer giant Agrium and its largest shareholder, activist hedge fund Jana Partners. In the summer of 2012, Jana proposed that Agrium spin off its retail business so as to boost shareholder returns. However, Agrium steadfastly rejected Jana’s proposal on the grounds that splitting up its retail and wholesale businesses would jeopardize its finances and erode shareholder value. Jana responded by proposing a new slate of directors to serve on Agrium’s board, but stirred controversy when it was revealed that its four nominee directors would receive a percentage of the profits that Jana earned on its shareholdings of Agrium, within a three-year period commencing September 2012. Agrium deemed this as a “golden leash” arrangement that was unheard of in Canada and said it created a clear conflict of interest that refuted the independence of Jana’s nominee directors.
 

RELATED TERMS
  1. Golden Hello

    A signing bonus offered to a candidate from a rival company. ...
  2. Golden Handcuffs

    A collection of financial incentives that are intended to encourage ...
  3. Golden Handshake

    A stipulation in an employment agreement which states that the ...
  4. Value Of Risk (VOR)

    The financial benefit that a risk-taking activity will bring ...
  5. Business Judgment Rule

    A legal principle which grants directors, officers, and agents ...
  6. Separation Of Powers

    An organizational structure in which responsibilities, authorities, ...
RELATED FAQS
  1. How do proxy fights work?

    A proxy fight occurs when a group of shareholders in a particular company attempts to join together to effect change in ... Read Full Answer >>
  2. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act ... Read Full Answer >>
  3. Why should investors research the C-suite executives of a company?

    C-suite executives are essential for creating and enacting overall firm strategy and are therefore an important aspect of ... Read Full Answer >>
  4. What is the difference between a direct and an indirect distribution channel?

    A direct distribution channel is organized and managed by the firm itself. An indirect distribution channel relies on intermediaries ... Read Full Answer >>
  5. How can an investor determine a company's annual return from looking at its financial ...

    The funds in a share premium account cannot be used for a company's general expenses. These funds are restricted in terms ... Read Full Answer >>
  6. What are the key differences between pro forma statements and GAAP statements?

    The U.S. generally accepted accounting principles (GAAP) require companies to adhere to uniform reporting standards that ... Read Full Answer >>
Related Articles
  1. Personal Finance

    How To Become A Corporate Board Member

    We look at how corporate boards are constructed, and how investors can get involved.
  2. Insurance

    Evaluating The Board Of Directors

    Corporate structure can tell you a lot about a company's potential. Learn more here.
  3. Options & Futures

    Pay Attention To The Proxy Statement

    Don't overlook this overview of a company's well-being.
  4. Mutual Funds & ETFs

    Proxy Voting Gives Fund Shareholders A Say

    You have the right to take part in important company decisions - even if you cannot attend the meetings.
  5. Economics

    What is a Business Model?

    Business model is the term for a company’s plan as to how it will earn revenue.
  6. Investing Basics

    What is a Minority Interest?

    A minority interest is an ownership or equity interest of less than 50% of an enterprise.
  7. Professionals

    Understanding Operations Management

    Operations management is concerned with converting materials and labor into goods and services as efficiently as possible to maximize profits.
  8. Investing News

    A New Corporate Governance Initiative In Japan

    Expectations are low that Japan can create a corporate governance climate that meets global standards, but a new initiative is aimed at doing just that.
  9. Stock Analysis

    Will American Airlines Fall Back To Earth In 2015?

    The airline industry enjoys blockbuster profits, and American Airlines Group has been a key beneficiary of the favorable trends that have lifted stocks.
  10. Stock Analysis

    Qualcomm's New Buyback Program Is Well-Timed

    Qualcomm announced after market close on Monday that they had approved a new stock buyback program, authorizing to repurchase $15 billion in shares.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center