Securities Law Commons^™

Nonvoting Shares And Efficient Corporate Governance, Dorothy S. Lund

Faculty Scholarship

A growing number of technology companies, including Google, Zillow, and Snap, have issued stock that does not allow investors to vote on corporate decisions. But there is fundamental disagreement among scholars and investors about whether nonvoting stock is beneficial or harmful. Critics argue that nonvoting shares perpetually insulate corporate insiders from influence and oversight, and therefore increase agency costs. By contrast, proponents contend that nonvoting shares may provide benefits that exceed these agency costs, such as enabling corporate insiders to pursue their long-term vision for the company without interference from outside shareholders.

This Article offers a novel perspective on this …

The Case Against Passive Shareholder Voting, Dorothy S. Lund

Faculty Scholarship

American investors have begun to embrace the reality that academics have been championing for decades — that a broad-based, passive indexing strategy is superior to picking individual stocks or investing in actively managed funds. But there are several reasons to believe that the rise of passive investing will have harmful consequences for firm governance, shareholders, and the economy. First, because passive funds seek only to match the performance of an index — not outperform it — they lack a financial incentive to ensure that each of the companies in their very large portfolios are well-run. Second, passive funds face an …

The Wolf At The Door: The Impact Of Hedge Fund Activism On Corporate Governance, John C. Coffee Jr., Darius Palia

Faculty Scholarship

Hedge fund activism has recently spiked, almost hyperbolically. No one disputes this, and most view it as a significant change. But, their reasons differ. Some see activist hedge funds as the natural champions of dispersed and diversified shareholders, who are less capable of collective action in their own interest. A key fact about activist hedge funds is that they are undiversified and typically hold significant stakes in the companies that comprise their portfolios. Given their larger stakes and focused holdings, they are less subject to the “rational apathy” that characterizes more diversified and even indexed investors, such as pension and …

"Loser Pays" And Federal Preemption, John C. Coffee Jr.

Faculty Scholarship

Delaware and the federal courts have been on a collision course since 2014 when the Delaware Supreme Court upheld the facial validity of a corporate bylaw that shifted the corporation’s (and all defendants’) legal expenses to a losing plaintiff. That 2014 decision, ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A. 3d 554 (Del. 2014), quickly led a number of public corporations to adopt similar “loser pays” bylaws and charter provisions, all of which are one-sided provisions (that is, only the plaintiff may be held liable) and most shift the fees against the plaintiff even if it wins (unless …

A Private Ordering Solution To Blockholder Disclosure, Joshua Mitts

Faculty Scholarship

The recent debate over reforming the Securities Exchange Act section 13(d) ten-day filing window demonstrates the importance of balancing the costs and benefits of delayed blockholder disclosure. While hedge fund activism may create shareholder value, short-termism is a very real problem for firms today. Rather than a rigid mandatory rule, the duration of the blockholder disclosure window should be set through a shareholder amendment to the corporate bylaws that empowers shareholders to set an optimal maximum length for each firm. To internalize the economic and moral costs to society of permitting trading on asymmetric information, the SEC should impose a …