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Full-Text Articles in Law
Index Funds And The Future Of Corporate Governance: Theory, Evidence, And Policy, Scott Hirst, Lucian Bebchuk
Index Funds And The Future Of Corporate Governance: Theory, Evidence, And Policy, Scott Hirst, Lucian Bebchuk
Faculty Scholarship
Index funds own an increasingly large proportion of American public companies. The stewardship decisions of index fund managers—how they monitor, vote, and engage with their portfolio companies—can be expected to have a profound impact on the governance and performance of public companies and the economy. Understanding index fund stewardship, and how policymaking can improve it, is thus critical for corporate law scholarship. In this Article we contribute to such understanding by providing a comprehensive theoretical, empirical, and policy analysis of index fund stewardship.
We begin by putting forward an agency-costs theory of index fund incentives. Stewardship decisions by index funds …
Frozen Charters, Scott Hirst
Frozen Charters, Scott Hirst
Faculty Scholarship
In 2012, the New York Stock Exchange changed its policies to prevent brokers voting shares on corporate governance proposals where they had not received instructions from beneficial owners. Although the change was intended to protect investors and improve corporate governance, it has had the opposite effect: a significant number of U.S. public companies are no longer able to amend important parts of their corporate charters, despite the support of their boards of directors and overwhelming majorities of shareholders. Their charters are frozen.
This paper provides the first empirical and policy analysis of the broker voting change and its significant unintended …
Private Ordering And The Proxy Access Debate, Scott Hirst, Lucian A. Bebchuk
Private Ordering And The Proxy Access Debate, Scott Hirst, Lucian A. Bebchuk
Faculty Scholarship
This Article examines two “meta” issues raised by opponents of the SEC’s proposal to provide shareholders with rights to place director candidates on the company’s proxy materials. First, opponents argue that, even assuming proxy access is desirable in many circumstances, the existing no-access default should be retained and the adoption of proxy access arrangements should be left to opting out of this default on a company-by-company basis. This Article, however, identifies strong reasons against retaining no-access as the default. There is substantial empirical evidence indicating that director insulation from removal is associated with lower firm value and worse performance. Furthermore, …
Leverage In The Board Room: The Unsung Influence Of Private Lenders In Corporate Governance, Frederick Tung
Leverage In The Board Room: The Unsung Influence Of Private Lenders In Corporate Governance, Frederick Tung
Faculty Scholarship
The influence of banks and other private lenders pervades public companies. From the first day of a lending arrangement, loan covenants and built-in contingency provisions affect managerial decision making. Conventional corporate governance analysis has been slow to notice or account for this lender influence. Corporate governance discourse has traditionally focused only on corporate law arrangements. The few existing accounts of creditors' influence over firm managers emphasize the drastic actions creditors take in extreme cases - when a firm is in serious trouble - but in fact, private lender influence is a routine feature of corporate governance even absent financial distress. …