I've got another new paper out, which continues my exploration of how shareholder voting rights fit into my director primacy model of corporate governance. The article has been accepted for publication by the Harvard Law Review, but the editors say it will need to be shaved by at least one-third due to space constraints. Where and how to do that strikes me as somewhat of a puzzle, as the piece is already pretty lean, at least by my standards. In any event, the full version will be available on SSRN. You can down load Director Primacy and Shareholder Disempowerment here.
Abstract: This essay is a response to Lucian Bebchuk's recent article The Case for Increasing Shareholder Power, 118 Harvard Law Review 833 (2005). In that article, Bebchuk put forward a set of proposals designed to allow "shareholders to initiate and vote to adopt changes in the company's basic corporate governance arrangements."
In response, I make three principal claims. First, if shareholder empowerment were as value-enhancing as Bebchuk claims, we should observe entrepreneurs taking a company public offering such rights either through appropriate provisions in the firm?s organic documents or by lobbying state legislatures to provide such rights off the rack in the corporation code. Since we observe neither, we may reasonably conclude investors do not value these rights.
Second, invoking my director primacy model of corporate governance, I present a first principles alternative to Bebchuk's account of the place of shareholder voting in corporate governance. Specifically, I argue that the present regime of limited shareholder voting rights is the majoritarian default and therefore should be preserved as the statutory off-the-rack rule.
Finally, I suggest a number of reasons to be skeptical of Bebchuk's claim that shareholders would make effective use of his proposed regime. In particular, I argue that even institutional investors have strong incentives to remain passive.
Keywords: corporations, corporate governance, shareholders, stockholders, institutional investors, board of directors, managers, voting
JEL Classifications: K22
Tags: Business Organizations Research Law