
Passive Exit
Economist Albert O. Hirschman (1970) classically set out the two alternatives facing dissatisfied members of an organization: They can voice displeasure or exit for greener pastures. Hirschman’s model has long explained the tradeoff facing shareholders of a poorly governed firm: Agitate for change or take the “Wall Street Walk” by selling shares.[1] Professor John C. Coffee (1991) showed that large institutional investors have little incentive to voice their concerns to monitor portfolio firms,[2] a trend exacerbated by low-fee “passive”[3] portfolio management (Bebchuk et al., 2017).[4]
While voice is often too costly for passive investors, exit is … Read more