Lawrence A. Cunningham

Corporate Law Professors on Public Company Boards

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Since passage of the Sarbanes-Oxley Act of 2002, public companies have been more enthusiastic than ever about appointing independent directors with specific expertise. They have often reached into the academy to recruit university professors, where expertise and independent thought thrive. The number of professors on public company boards has tripled since 2002, and the number with law degrees has nearly doubled. Today, nearly one in eight public company directors is a professor and nearly half of all public companies have an academic on the board. The results have been positive, as evidence discussed below shows that these groups are associated … Read more

Quality Shareholder Voting

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This post lays out a new approach to shareholder voting designed to increase the voting power of long-term committed shareholders: adding votes to shares based on both long holding periods and high concentrations. Called quality voting, the approach would give more votes to corporate shares held in large amounts for long periods. Quality voting should be far less controversial than dual class share structures and would avoid the drawbacks of time-weighted plans.

The standard default voting rule in U.S. corporations is one share, one vote. Although manifestly democratic, it is neither inevitable nor mandatory. One of the most prominent … Read more

The Role and Costs of Intermediaries in Financial Markets

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In an important new article, Intermediary Influence, Columbia University Professor Kathryn Judge explores the persistence of high fees in the financial services sector, and attributes the costly phenomenon to political clout of financial intermediaries.  Through a series of examples from a cross section of settings such as real estate agents, stockbrokers, stock exchanges, and mutual funds, Professor Judges erects a singular framework to explain numerous examples of sustained pricing power. The unitary framework integrates concepts developed across different research fields, including transaction costs economics, agency theory, and regulatory capture.

Professor Judge’s impressive intellectual accomplishment is to unite disparate … Read more

Berkshire Hathaway as Idealized Private Equity

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How different is private equity from Berkshire Hathaway? The phrase “private equity” has a certain ring to it, suggesting providing shareholder capital to buy and hold businesses.  In fact, most private equity firms use substantial debt to acquire companies, charge considerable fees to restructure them, and finally flip them as rapidly as possible, often to public capital markets.

Berkshire’s approach is essentially the opposite, and sounds more like what the phrase private equity connotes: regularly buying companies using solely its own capital, which includes leverage from insurance float but never debt, and holding subsidiaries permanently while giving managers free … Read more

Buffett’s and Berkshire’s Anti-Bureaucracy

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Legions of people have learned valuable lessons from Warren Buffett about investing; his $375 billion Berkshire Hathaway last month celebrated its 50th anniversary under his leadership. But Buffett’s and Berkshire’s lessons about corporate administration have been ignored, although they are more socially and economically significant. For fifty years, while other American companies evolved into bureaucracies, Berkshire maintained a distinctive anti-bureaucratic culture, despite now employing 350,000 people across sixty different subsidiaries.

As explored in my book, Berkshire beyond Buffett: The Enduring Value of Values (Columbia University Press 2014), Berkshire’s practices are based on old-fashioned values such as self-reliance, autonomy and … Read more

Warren Buffett v. Modern Finance Theory

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Experienced readers of Warren Buffett’s letters to the shareholders of Berkshire Hathaway Inc. have gained an enormously valuable informal education. The central theme uniting Buffett’s lucid essays is that the principles of fundamental business analysis, first formulated by his teachers at Columbia Business School, Ben Graham and David Dodd, should guide investment practice.

This stance conflicts with the dominant view of contemporary teachers of finance, which stresses modern finance theory’s efficient market hypothesis to challenge whether such fundamental analysis can be practiced successfully. Debate over this question nevertheless continues, in academia and on Wall Street, raising issues of great important … Read more

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Editor's Tweet: Professor Lawrence A. Cunningham of GW Law discusses Warren Buffett's investing philosophy against modern finance theory