For decades, Delaware and federal law governing contests for corporate control have focused on building walls to keep corporate raiders outside the gates, while doing relatively little to stop activist hedge funds. The prevailing academic view has been similar: Scholars frequently support measures that make life more difficult for raiders, while taking a more skeptical stance toward measures that target activists. In both cases, the conventional wisdom rests on an assumption that raiders pose a greater threat than activists to corporations and their stockholders.
American workers are more productive than ever, but they take home the same pay they did 40 years ago. While firms have enjoyed blockbuster profits—and the U.S. gross domestic product has tripled—most American households have not shared in this increasing prosperity. As wages have stagnated, income inequality has skyrocketed. Causes like de-unionization, globalization, immigration, labor market concentration, and technology have been blamed for these trends. But an additional culprit has escaped detection: common ownership—a few powerful institutional investors controlling large stakes in most U.S. corporations. In a new article, we explain how the shift to common ownership has been … Read more
The debate over dual class firms has morphed from an objection to their very legitimacy to a demand to subject them to a mandatory sunset provision. My colleague and friend, Professor John Coffee, believes that dual class firms are undesirable and should be restricted, but, to his credit, he exposes the problems with mandating the sunset and suggests ways for improvement. Here, I wish to explain why restricting dual class firms might be costly to the economy.
The objection to dual class firms is familiar. In dual class firms, managers hold incontestable control through high voting shares, with a much … Read more
For decades, corporate law played a pivotal role in regulating corporations across the United States. Consequently, Delaware, the leading state of incorporation, and its courts played a central part in corporate law and governance. More than half of publicly traded firms are incorporated in Delaware, and in many law schools in the United States, Delaware corporate law has become virtually synonymous with American corporate law. While some experts have praised Delaware courts for their efficiency and sophistication in adjudicating corporate disputes, and others have accused the Delaware courts of pro-management leanings, very few would dispute that Delaware courts have played … Read more
For the last 40 years, the problem of managerial agency costs—corporate managers shirking duties and diverting resources—has dominated the study of corporate law and governance. Many scholars treat the reduction of agency costs as the essential function of corporate law and governance. To reduce agency costs, these scholars would mandate corporate governance arrangements that empower shareholders to hold managers accountable, such as majority voting and proxy access. And they would ban arrangements that disempower shareholders, such as staggered boards and dual-class shares. Similarly, they support hostile takeovers and hedge fund activism to combat management entrenchment and reduce agency costs. To … Read more