Title: The Legitimate Rights of Public Shareholders
Abstract: Table of ContentsI. Introduction 1636II. Financiers Who Do Not Finance: The Empirical Evidence 1646A. A (Very) Brief History of Equity Financing in America 1649B. The Empirical Evidence 1653C. Summary Conclusion: Creditors Make, Shareholders Take 1665III. Equity Without Risk 1666A. Shareholders as Risk-Bearers 1667B. The Unbearable Lightness of Capital Gains 1671IV. The Legitimate Rights of Public Shareholders 1676A. State Law 1676B. Information and Exit: Federal Securities Regulation 1678C. Conclusion 1679Appendix A 1680Appendix B 1681I. IntroductionFor a decade or more before the American economy lay in its current shambles, our system of corporate governance had come under serious attack. Shareholders and their advocates had arisen from their slumber and had begun to demand the right to participate in corporate decisionmaking.1 For over a decade, and accelerating during the pre-panic years, activist shareholders, typically institutional investors and hedge funds, asserted their power to insist that the corporations in which they invested take the specific actions they desired.2 These institutional initiatives have included proposals to allow shareholders to advise boards on executive compensation, to require that directors be elected by majority vote of the shareholders (in contrast to the plurality riule that traditionally dominates), to remove takeover defenses like poison pills and staggered boards, to insist upon proxy access, and to eliminate broker voting.3 Activist hedge funds have been even more aggressive, often successfully demanding that corporations either sell themselves or divest themselves of portions of their businesses, that chief executives resign or be dismissed, and that corporations undertake major restructurings to return to shareholders while piling on corporate debt.4Their efforts have been aided by the work of prominent, and increasingly activist, scholars, led forcefully by Lucian Bebchuk, who have mounted an aggressive campaign to enhance shareholder voting rights.5 While their efforts have been controversial,6 they have garnered significant attention and have created synergy with the actions of shareholders, acting principally through shareholder advisory services, and with activist institutional investors, to put substantial pressure on businesses and lawmakers to expand shareholder rights.7The objective of the so-called reformers, and much of the defense, is centered on the question of which mode of corporate governance - a director primacy model or a shareholder-centric model - holds the greatest promise for enhancing value.8 While the meaning of the phrase firm typically is left ambiguous, the underlying assumption in much of the debate appears to be that value equates to share price.9 A secondary objective, which I do not address because I believe that it serves principally as a rhetorical device and tends not to be taken very seriously, at least in the corporate and economics literature, is that the corporation is somehow a democratic institution and shareholders are its citizens. …
Publication Year: 2009
Publication Date: 2009-10-01
Language: en
Type: article
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Cited By Count: 5
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