Hastings Business Law Journal


Adam Prestidge


Shareholder activism has taken an increasingly high-profile and polarizing role in investing and corporate governance. Moves by shareholder activists, and the policy behind those moves, constantly appear in corporate headlines. One of shareholder activists' primary methods of enacting changes in companies is to nominate directors to the board, and often those director nominees are highly compensated by the shareholder activist itself. Some in the corporate world oppose this practice, arguing that it creates a significant conflict of interest and can damage the company in the short term, while others argue that the practice is a necessary tool for investors that may actually lead to a better alignment of interests. Both arguments have strong merit, which is why companies should evaluate director nominee compensation plans on a case-by-case basis, and react to them not with a preemptive prohibition, but with an evaluative middle ground response.