Golden handshakes and golden parachutes : serverance packages for corporate executives
University of British Columbia
Master of Laws - LLM
Severance packages for corporate executives have recently caused public outrage in all parts of the world. Terms like "golden handshake" or "golden parachute" have been used in this context, but have remained somewhat uncertain as to their precise legal meaning. This thesis examines the legitimacy of executive severance packages in the three major areas of contract law, employment law and corporate law including supplementary regulation. Its intention is to determine whether the law imposes restrictions on the level of severance and constraints on the contracting parties' bargaining behaviour. An introduction to the area of severance packages and "golden handshakes" in the corporate realm is delivered by a brief presentation of the recent "Mannesmann Affair" that occurred in Germany early in 2000. The case involved generous "golden handshakes" for members of the management who were terminated as a result of a takeover of the corporation and resulted in criminal proceedings against members of the board of directors and the management. In light of the confusing use of the different terms with regards to severance pay, the thesis develops its own definitions for further purposes of study. The thesis then proceeds in three main parts. First, the basic principles arising from contract law and employment will be discussed in relation to the agreements concluded between the executive and the board of directors acting on behalf of the corporation. The main focus lies on the principle of freedom of contract and the notion of reasonable notice, both of which govern the executive severance agreement. Secondly, after a brief presentation of the structure of the Canadian corporation and the inherent potential for managerial self-dealing, the following chapter analyzes the impact of corporate law and other regulation on executive severance packages and managerial bargaining behaviour in general. Based on a comparative study of the Canadian and the German legal system, the thesis concludes with an assessment of the effectiveness of the present regime to impose limits on executive severance packages and takes a look on potential considerations for reform.
Law, Peter A. Allard School of