American corporations have undergone a gradual but significant transformation. Founding chief executive officers (“founder-CEOs”) and activist hedge funds increasingly dominate their companies despite owning well short of a majority of shares. Founder-CEOs wield control through their personal brands or dual-class voting structures, while activist hedge funds press for major governance changes. In a new paper, we argue that these two types of shareholders have disproportionate influence,  describing them as high-influence shareholders.

Over the past few decades, high-influence shareholders have exerted increasing sway over public corporations, often pressuring boards or, in some cases, marginalizing directors’ authority altogether. Although founder-CEOs and hedge funds are often treated as being on opposite ends of the governance spectrum, both exemplify the model of the high-influence shareholder.

High-influence shareholders can benefit corporations in a number of ways. Founder-CEOs often pursue long-term visions that ultimately generate extraordinary economic value. From Google to Amazon to Tesla, some of the most transformative companies have been shaped by founders who exercised significant influence over their firms. Hedge fund activists, for their part, prompt companies to cut costs, improve efficiency, and address managerial underperformance.

However, high-influence shareholders may also cause corporations to maximize their interests at the expense of other shareholders. A founder-CEO may pursue a costly, fanciful vision that strengthens the founder’s personal impact but exposes the company to excessive risk. Hedge funds, which are largely compensated through carried interest based on returns for their own investors, have strong incentives to take high risks to generate outsized returns and justify the costs of targeting and intervening in corporate management. These risks may not align with the interests of the company and its broader shareholder base.

Delaware’s response to high-influence shareholders has been inconsistent, generating market uncertainty. Courts have alternated between deferring to founder-CEOs under the business judgment rule and expanding the definition of control to impose entire fairness review. Likewise, courts have upheld poison pills against activist hedge funds to guard against creeping control, yet have struck down pills explicitly aimed at deterring activism. We argue that the core reason for the incoherence of Delaware jurisprudence on high-influence shareholders is its reliance on the traditional concept of control. While Delaware judges and legislators have focused on defining “control” to determine the applicable level of judicial scrutiny, high-influence shareholders, such as founder-CEOs and activist hedge funds, tend to exercise power through influence over decision-making rather than formal voting control. Their influence is often disproportionate to their ownership stake, and they may use it in ways that an informed, independent board believes are not conducive to firm value.

We propose a disproportionate influence doctrine for adjudicating cases involving high-influence shareholders. This benchmark not only accounts for the modern realities of power, expertise, and responsibility within a company, but also provides a coherent account of the Delaware Chancery Court’s approach in its decisions involving high-influence shareholders. It helps explain why courts apply heightened scrutiny to transactions involving founder-CEOs even when they do not have voting control, and why they permit boards to adopt poison pills that limit hedge funds’ ability to launch proxy contests. The potential for these shareholders to distort corporate decision-making due to their significant influence warrants the implementation of checks and balances, even if, on average, such shareholders’ influence tends to enhance firm value.

The disproportionate influence test is broader than the formal doctrine of control in that it is not limited to majority voting power but rests on a similar underlying rationale. Just as controlling shareholders with majority stakes can materially influence decisions in ways that advance their own interests at the expense of others, high-influence shareholders can exert comparable influence despite holding only minority stakes. Unlike controlling shareholders, however, high-influence shareholders should not themselves be saddled with fiduciary duties to other investors. Instead, the presence of disproportionate influence should trigger enhanced scrutiny of board decisions, or, alternatively, the risk of such influence should justify reasonable defensive measures undertaken by the board.

We acknowledge that a flexible definition of disproportionate influence may lead to some unpredictability and the risk of judicial error. However, flexible standards are a hallmark of Delaware courts’ institutional expertise. Delaware’s jurisprudence is particularly well suited to address complex and evolving issues, such as the role of high-influence shareholders, that resist easy categorization or bright-line rules. As we emphasize in the paper, predictability is best achieved not through rigid definitions of control, but through clearer cleansing procedures that guide how boards may validate decisions influenced by high-influence shareholders.

Our proposal can also address some of the deficiencies created by Delaware’s recent legislative reforms. Senate Bill 21, enacted in 2025, introduces a rigid, bright-line definition of a “controlling stockholder,” limited to shareholders who hold one-third or more of the corporation’s voting power or have the contractual right to appoint a majority of the board. By narrowing control to these formal thresholds, the statute increases predictability but excludes many founder-CEOs whose influence far exceeds their voting power. Meanwhile, the new Section 122(18) of the Delaware corporate code authorizes boards to contractually delegate core governance powers to shareholders, enabling founder-CEOs or activist funds to secure extensive authority even when their economic stake is small. Taken together, these reforms risk leaving influential shareholders who do not qualify as controllers effectively unchecked. A doctrine centered on disproportionate influence can fill this gap by ensuring that board decisions shaped by such shareholders are subject to appropriate scrutiny, even when formal control thresholds are not met.

Finally, we note that our proposal strikes a balance between reinstating the board’s role as the ultimate decision-maker and recognizing the beneficial role that high-influence shareholders can play in corporate governance. While it subjects decisions taken under the influence of these high-influence shareholders to potential review, the proposal also calls for simplified and predictable cleansing procedures to validate such decisions, which aligns with the increasingly procedural nature of board decision-making. Moreover, it acknowledges that these shareholders, who do not qualify as controllers, are not themselves subject to fiduciary review and remain free to pursue their own interests. However, board decisions that are unduly shaped by those interests may be susceptible to challenge. In this way, the proposal reinforces the board’s governing authority while accommodating the valuable contributions of influential shareholders.

Dhruv Aggarwal is an assistant professor at Northwestern University’s Pritzker School of Law, and Ofer Eldar is a professor at the University of California, Berkeley – School of Law. This post is based on their recent paper, “Disproportionate Influence: Rethinking Control in American Corporate Governance,” available here.