“Golden Leash” Pay for Directors at The Dow Chemical Company

Case Solution

Ian D. Gow, Suraj Srinivasan, Neeraj Goyal
Harvard Business School ()

In November 2014, The Dow Chemical Company faced the prospect of a power battle with prominent hedge fund and activist investor Third Point Management. The activist had criticized Dow’s recent performance, pleading for the company to separate to maximize its potential. The activist also suggested that two director candidates join Dow’s board of directors. Third Point offered its nominee directors a so-called “gold strap” incentive structure to provide a substantial incentive payment from the investor if the company did well. Proponents and critics had weighed the pros and cons of such incentive systems for independent directors. With the prospect of a proxy battle, Dow’s board of directors had to decide whether to invite the two directors to the company’s board of directors, knowing that they would come up with the hedge fund’s special payment system.

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