In a corporate merger, Diamond Shamrock retained its corporate identity and Natomas Corp. was absorbed into Diamond’s corporate hierarchy. Five inside directors (directors who are also officers of the corporation) of Natomas had "golden parachutes," which were incorporated into the merger agreement. The terms of the parachute agreements provided each of the five individuals would receive a payment equal to three years’ compensation if they left their positions at Natomas at any time for any reason other than termination for just cause. Three of the five voluntarily left their positions after three years. Under the terms of their parachute agreements, they collected over $10 million. A suit challenging the golden parachutes was brought by Gaillard, a Natomas shareholder. A trial court granted the defendants’ motion for summary judgment.
Are golden parachutes ethical?
What practical considerations would lead a corporation to make such agreements with its top management?
Should it matter whether a golden parachute is developed and presented to a board by the same individual who benefits - in this case, for example, by the five inside directors?
