My essay Director Primacy and Shareholder Disempowerment can now be downloaded in its "as published" form from the Harvard Law Review's website. From the introduction:
In his 2004 article, Lucian Bebchuk advances proposals designed to allow “shareholders to initiate and vote to adopt changes in the company’s basic corporate governance arrangements.” As Bebchuk explains, the housekeeping rules of corporation law effectively preclude shareholders from initiating corporate decisions. Indeed, the extent to which corporate law is stacked against shareholder “intervention power” goes beyond just the housekeeping rules; much of business law acts to limit shareholder involvement in corporate governance. Taken together, these rules form a regime I call “director primacy.”
Hence, I do not quibble with Bebchuk’s exposition of shareholder weakness; to the contrary, I welcome it as further evidence that my director primacy model accurately describes how corporations work. Instead, I intend to take issue with Bebchuk’s proposal to replace the existing, mostly permissive rules disempowering shareholders with a new set of mostly mandatory rules empowering them.
Part I of this Response argues that Bebchuk’s proposed default rules would be inefficient, asking: if shareholder empowerment is as value-enhancing as Bebchuk claims, why do we not already see it in the marketplace? After all, free markets typically produce only those goods people actually wish to purchase, and corporate governance terms are no exception. Part II invokes first principles to offer an alternative to Bebchuk’s account of the proper role of shareholder voting in corporate governance. It argues 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, Part III questions whether shareholders would make effective use of Bebchuk’s proposed regime.
