Senate Votes to Restrict ‘Golden Parachute’ Deals : ‘Poison Pill’ Provisions Would Also Require Shareholder Approval

The Senate, debating a wide-ranging bill designed to limit hostile corporate takeovers, Tuesday approved a provision that would require stockholders to vote before a company could award “golden parachute” severance pay to top executives who lose their jobs in mergers.

Before putting off further discussion until at least Thursday, the Senate also refused to kill a similar measure requiring stockholder approval of “poison pills,” a form of defense against takeovers in which companies may offer a new issue of shares or employ other tactics to make a takeover prohibitively expensive.

The provisions are part of a bill that addresses the recent surge in hostile mergers by mandating quicker public disclosure of significant stockholdings and restrictions on the purchase of large amounts of stock. Even if passed by the Senate, however, no final action on the bill is likely soon. The House is not scheduled to consider similar legislation this year.

The provision on golden parachutes, which have amounted to as much as $25 million for a displaced executive, passed on a 98-1 vote.

“I am not against severance pay,” said Sen. William Armstrong (R-Colo.), who sponsored the amendment. “But when the severance pay is conditioned on a takeover and the amounts are abusive, somebody has to step in and guard the shareholders . . . or let them protect themselves.”

Armstrong said he thought that few stockholders would approve the large settlements if given the chance to vote on them. Sen. William Roth (R-Del.) cast the only no vote on the provision.

Proxmire Opposes Poison Pill Measure

Senate Banking, Housing and Urban Affairs Committee Chairman William Proxmire (D-Wis.), the author of the anti-takeover bill, said he did not oppose the golden parachute amendment but that he thought the poison pill measure, also introduced by Armstrong, was unwise.

Armstrong said the required vote would be important to protect shareholders’ rights to a say in a large stock issue, but Proxmire maintained that it would make it more difficult for companies to use this strategy to fight a takeover. Proxmire also said states, rather than Congress, should retain authority over such corporate activities within their jurisdictions.

A move to table consideration of the measure failed, 56 to 40.

“Obviously, we suffered a serious loss” on that vote, he said. He called the poison pill restriction “a raider’s paradise masquerading as stockholder protection.”

Proxmire’s anti-takeover bill, which was approved in September by the Banking Committee, 14 to 6, has lingered on the Senate calendar for nine months as Congress has been wary of jolting Wall Street in the aftermath of the October crash.

The legislation would reduce from 10 days to five the period in which persons who buy more than 5% of a company’s stock must disclose their purchases to the Securities and Exchange Commission.

The bill would also require that information be provided to the SEC about financing of the stock purchase, the parties who participated in relevant discussions during the preceding 30 days and whether the purchase was designed to take control of the company.