Marcel Kahan and Ed Rock discuss the problems that are posed when the US Government takes a majority shareholder position in a private company, as it did in GM, Chrysler, et al.:
Corporate law provides a complex and comprehensive set of standards of conduct to protect noncontrolling shareholders from controlling shareholders who have goals other than maximizing firm value, but are designed with private parties in mind. We show that when the government is the controlling shareholder, the Delaware restrictions are largely displaced, but hardly replaced, by federal provisions....
Having concluded that the existing accountability structures do not provide sufficient protection of minority shareholder interests, we examine the variety of ways (in the U.S. and elsewhere) in which government ownership has been structured in order to minimize political interference at the expense of non-controlling shareholders, including nonvoting stock, independent directors, dedicated trusts, and separate management companies. None of these approaches offers robust protection of non-controlling shareholders.
Because neither ex ante legal structures nor ex post judicial review holds much promise for controlling political interference, we are left with a choice between developing new structures of accountability and bringing this anomalous era of government control to a speedy conclusion.
I vote for bringing it to an end.
