Golden Leash

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. 

BREAKING DOWN '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.
 

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