Asset Managers as Regulators

The corporation’s role in society is in flux. Previous generations saw government as an important bulwark against corporate harm. Today, by contrast, corporate America is thought to be a solution to government dysfunction around issues like inequality and the environment. In addition, the “Big Three” asset manager giants that specialize in index funds – Vanguard, State Street, and BlackRock – have voiced concern over these same issues and promised that they will push companies to address them.

In a new article, I evaluate this shift in the corporate political environment. I argue that demand for regulation has outstripped supply, and … Read more

In Search of Good Corporate Governance

What is the right governance framework for a public company? This question sits at the core of decades of empirical and theoretical research, and yet we still lack consensus on an answer. In particular, agency-cost essentialists support governance structures that maximize accountability to the company’s shareholders, while proponents of board-centered models, as well as stakeholder governance advocates, prefer arrangements that insulate management from shareholder influence. Still others contend that there is no “one-size-fits-all” governance arrangement. Despite this range of views, agency-cost essentialists have mostly won the day. In both academic and professional circles, “good governance” is generally defined as the … Read more

The Cost of Doing Business: Corporate Crime and Punishment Post-Crisis

For many years, law and economics scholars, as well as politicians and regulators, have debated whether corporate criminal enforcement deters too much beneficial corporate activity or lets corporate criminals off too easily. This debate has recently grown more polarized: On the one hand, academics, judges, and politicians have excoriated enforcement agencies for failing to send individual bankers to jail in the wake of the financial crisis; on the other, the Justice Department has since relaxed policies aimed at holding individuals liable and reduced the size of fines imposed on corporations.

A crucial and yet understudied piece of evidence in this … Read more

Toward a Mission Statement for Mutual Funds in Shareholder Litigation

Mutual funds own approximately 30 percent of the U.S. equity market, and the Big Three fund families – Blackrock, Vanguard, and State Street – are the largest blockholders in the vast majority of large, publicly traded companies.  This has made mutual funds a force to be reckoned with in American corporate governance.  Mutual funds tout their active engagement in corporate governance and claim to be “good at it.”  But are they?

Traditionally, there are three levers of power in corporate governance: voting, selling, and suing.  Selling is not an option for many mutual funds – especially index funds, ETFs, and … Read more