American Apparel, Crumbs Cupcakes, and Lululemon, Oh My! Examples of Why Increased Shareholder Involvement Will Not Fix Corporate America

In 2008, the United States experienced the largest financial downturn it had seen since the Great Depression. Some point to excessive compensation as a leading cause of the Financial Crisis, while others blame a lack of shareholder involvement in corporate management. Congress responded by enacting several legislative acts, including the Troubled Asset Relief Program in 2009, and the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010. These reforms included provisions requiring shareholder “say-on-pay” votes and, more generally speaking, encouraged shareholder engagement and dramatically increased shareholders’ influence on corporate decision-making. However, these congressional reforms miss the mark because they fail to address compensation plans that encourage excessive risk-taking. Many believed that giving power to the shareholders would be an adequate solution to this problem. However, based on the current reality of the corporate landscape in the United States, the expectation that shareholders will adequately govern and discipline corporations is doomed to disappoint. This Note argues that the post-Financial-Crisis legislation–specifically, the legislation’s push for increased shareholder involvement–fails to adequately fix the problem of excessive executive risk-taking; instead, a deferred compensation model for corporate executives would be a more effective solution for that problem.