Compensation Caywood, Steven C. (2010). Wasting the

¶ … Compensation Caywood, Steven C. (2010). Wasting the Corporate Waste Doctrine: How the Doctrine Can Provide a Viable Solution in Controlling Excessive Executive Compensation. Michigan Law Review, 109(1), 111-136. Major Thesis: This article reviews and seeks a solution for the controversial issue of corporate executives receiving enormous compensation. The article points out that public outcry against grossly, outrageously inflated bonuses and other compensations for executives has rarely done any good, but the group that suffers the most when executives receive such huge compensation are the shareholders.

Meantime this paper suggests that the "corporate waste doctrine" is one way to limit "excessive executive compensation"; if the corporate waste doctrine were enforced legislatively, the author explains, and executives continue to be paid outlandishly huge bonuses, the stakeholders would have a legal recourse in response. Clearly it is unfair when an executive -- specifically a CEO -- receives "…roughly 400 times that of an average worker in his or her respective industry," Caywood explains on page 113.

In fact, receiving four hundred times what an average worker in the company receives is "a disparity twenty times greater than in 1965," Caywood asserts. In other words, the gaps between haves and have-nots continues to escalate, with those on the lower rungs of the ladder left in the dust while executives profit through shameful sums of money lavished on them.

There are reform ideas in the works, including one by Congressman Barney Frank, that would be a "say-on-pay" law, giving the shareholders the right to vote on whether or not to grant big compensation packages to high-placed executives (Caywood, 114). Caywood notes that the "say-on-pay" law would not be binding, but rather "advisory" on the board of directors (114).

Utility: This article is very useful for: a) anyone pursuing a degree in business or economics; b) stakeholders / stockholders in a corporation whether or not they are impacted by inordinately large bonuses to executives; having this knowledge is future ammunition in case there are compensation controversies; c) ordinary citizens whose jobs and mortgages are on shaky ground, and who see executives receiving multi-million dollar bonuses when the economy is a recessionary period and ordinary workers being laid off; and d) voters that take more than a cursory look at how candidates for public office approach the economic issues at hand; e.g., do those candidates espouse citizen-friendly views vis-a-vis reining in outrageous bonuses to Wall Street executives and others? The article is also useful for the basic facts it presents about the corporate waste doctrine, a doctrine that not many people are familiar with.

The doctrine is already in place, it is not part of a political reform package. The corporate waste doctrine is a "relatively simple" process; it allows a shareholder (or a group of shareholders) to make a claim against the company's board of directors when they have evidence that the board is "wasting company assets" (Caywood, 115). This "waste" can include "any distribution of company assets" albeit in most instances the claims are made against executive compensation, Caywood continues (115).

The corporate waste doctrine is seen as an "equitable safety valve," Caywood goes on. That means it can be invoked in instances where shareholders have little else to turn to as an option to witnessing executives carting off millions in neat bonus packages uncontested by those who have seen their stock earning plunge in the meantime. If this is a viable process to challenge huge corporate bonuses, why is it so rarely used? Caywood explains there are several reasons why it is rarely employed.

The standard that has been adopted for the corporate waste doctrine "is impossibly high"; this leads courts and judges to "dismiss waste claims at the initial stages of litigation" (115). In other words, because shareholder plaintiffs "…are not able to plead facts to meet the high burden imposed by the corporate waste doctrine, no discovery occurs" in those claims.

And hence, if plaintiffs are not allowed to use typically legal discovery strategies, no determinations are made by the courts as to whether the board of directors allowed company profits to be wasted (Caywood, 117). Also, there are so few cases that actually come to fruition that there is a "dearth" of academic information for attorneys and activists to use.

Moreover, how could this article and the knowledge of corporate waste doctrine be of benefit to me in the future? If I were in the position of a shareholder in a corporation -- all I would have to do to become a shareholder is buy shares in any given company -- and executives in the corporation were given grossly over-the-top salaries, I would organize other shareholders and together we stakeholders would retain a competent attorney and plan to use the corporate waste doctrine.

Is there a precedent for bringing corporate waste to the point of litigation? There are a number.