Law Commons^™

Do Institutional Owners Monitor? Evidence From Voting On Connected Transaction Proposals In Hong Kong-Listed Companies, Félix E. Mezzanotte, Simon Fung

Michigan Business & Entrepreneurial Law Review

The conventional view in Hong Kong has been that institutional owners tend to be passive owners and that they do little to monitor the companies’ management. We investigated whether the presence of institutional owners in Hong Kong-listed companies was associated with greater monitoring of management through dissent voting by hand-collecting information for a sample (n= 96) of connected transaction proposals (“CT proposals”) and of their voting outcomes, as announced in the Stock Exchange of Hong Kong during the period from 2012–14. Our study shows that voting approval rates on CT proposals were lower (i.e. greater dissent voting) when institutional owners …

Third-Party Institutional Proxy Advisors: Conflicts Of Interest And Roads To Reform, Matthew Fagan

University of Michigan Journal of Law Reform

With the rise of institutional activist investors in recent decades—including a purported 495 activist campaigns against U.S. corporations in 2016 alone—the role that third-party institutional proxy advisors play in corporate governance has greatly increased. The United States Office of Government Accountability estimates that clients of the top five proxy advisory firms account for about $41.5 trillion in equity throughout the world. For several years, discussions have developed regarding conflicts of interest faced by proxy advisors. For example, Institutional Shareholder Services, the top proxy advisory firm in the world, frequently provides advice to institutional investors on how to vote proxies while …

Finance And Growth: The Legal And Regulatory Implications Of The Role Of The Public Equity Market In The United States, Ezra Wasserman Mitchell

Michigan Business & Entrepreneurial Law Review

The important study of the relationship between finance and economic growth has exploded over the past two decades. One of the most significant open questions is the role of the public equity market in stimulating growth and the channels it follows if it does. This paper examines that question from an economic, legal, and historical perspective, especially with regard to its regulatory and corporate governance implications. The US market is my focus.

In contrast to most studies, I follow both economic history and the actual flow of funds in addition to empirics and theory to conclude that the public equity …

On The Role And Regulation Of Proxy Advisors, Paul Rose

Michigan Law Review First Impressions

In anticipation of proxy season-the springtime ritual where companies prepare and deliver proxy statements in preparation for annual shareholder meetings-U.S. public companies typically reexamine their corporate governance structures and policies. Many corporate governance structures that were acceptable ten years ago are now considered outmoded or even evidence of managerial entrenchment. For example, consider the classified board of directors. In recent years, many companies have shifted from a classified board of directors to an annually elected board. A company might adopt an annually-elected board structure for a number of reasons. A classified board can serve as an entrenchment device, for instance, …

Has Corporate Law Failed? Addressing Proposals For Reform, Antony Page

Michigan Law Review

Part I of this Review discusses the modem "nexus of contracts" approach to corporations and highlights how Greenfield's views differ. Part II examines corporate goals and purposes, suggesting that Greenfield overstates the impact of the shareholder-primacy norm and does not offer a preferable alternative. Part III critiques the means to the ends--Greenfield's proposals for changing the mechanics of corporate governance. Although several of his proposals are intriguing, they seem unlikely to achieve their pro-social aims. This Review remains skeptical, in part because-even given its problems-the U.S. "director-centric governance structure has created the most successful economy the world has ever seen." …

Administrative Governance As Corporate Governance: A Partial Explanation For The Growth Of China's Stock Markets, David A. Caragliano

Michigan Journal of International Law

This Note argues that during the first decade of stock market development (roughly 1990-2000) Chinese institutions, which emphasized administrative direction and control, functioned in lieu of legal and financial institutions. Preexisting modes of administrative governance introduced incentives that mitigated information asymmetry problems inherent in initial public offerings (IPOs) and contributed to enhanced market valuation during the post-IPO phase. The author focuses on two sui generis Chinese institutions employed during this time period: the quota system for equity share issuance and the Special Treatment (ST) system for underperforming issuers. In short, the thesis is that administrative governance substituted for corporate governance.

Gatekeeper Failures: Why Important, What To Do, Merritt B. Fox

Michigan Law Review

The United States was hit by a wave of corporate scandals that crested between late 2001 and the end of 2002. Some were traditional scandals involving insiders looting company assets - the most prominent being Tyco, HealthSouth, and Adelphia. But most were what might be called "financial scandals": attempts by an issuer to maximize the market price of its securities by creating misimpressions as to what its future cash flows were likely to be. Enron and WorldCom were the most spectacular examples of these financial scandals. In scores of additional cases, the companies involved and their executives were sued by …

Mickey, Can You Spare A Dime? Disneywar, Executive Compensation, Corporate Governance, And Business Law Pedagogy, Kenneth M. Rosen

Michigan Law Review

American business executives are under fire. Recent, notorious difficulties at companies such as the Enron Corporation brought attention to these individuals. Notwithstanding the conclusion of the trials of some of those top executives, skepticism remains about the inner workings of U.S. corporations and the quality of corporate governance. Drawing special scrutiny from some quarters is the compensation granted to corporate officers and directors. For instance, the timing of certain stock option grants, a key component of some compensation packages, raised ire because of those options' supposed backdating and fortuitous proximity to increases in share prices. Further, some questioned more generally …

Brand New Deal: The Branding Effect Of Corporate Deal Structures, Victor Fleischer

Michigan Law Review

Consider the unusual legal structures of the following four deals: When Google went public in 2004, it used an Internet auction to sell its stock to shareholders. When Ben & Jerry's went public in 1984, it sold its stock only to Vermont residents. Steve Jobs's contract with Apple entitles him to an annual cash salary of exactly one dollar. Stanley Works, a Connecticut toolmaker, considered reincorporating in Bermuda to reduce its tax liability. Under public pressure, it changed its mind and remains legally incorporated in Connecticut. What do these deals have in common? In each case, the legal infrastructure of …

Realigning Corporate Governance: Shareholder Activism By Labor Unions, Stewart J. Schwab, Randall S. Thomas

Michigan Law Review

Labor unions are active again - but this time as capitalists. The potential strength of union pension funds has long been noted, but until recently unions have held their stock passively or invested in union-friendly companies. In the 1990s, however, unions have become the most aggressive of all institutional shareholders. In most cases, it is hard to find a socialist or proletarian plot in what unions are doing with their shares. Rather, labor activism is a model for any large institutional investor attempting to maximize return on capital. Unions, union pension funds, individual union members, and labor-oriented investment funds are …

Protecting Nonshareholder Interests In The Market For Corporate Control: A Role For State Takeover Statutes, Frank J. Garcia

University of Michigan Journal of Law Reform

Part I of this Note describes a phenomenon of modern corporate activity first identified over fifty years ago as the "separation of ownership and control." This separation gives rise to the need for a governing corporate norm; recognizing the normative aspect of this phenomenon has direct implications for the takeover debate.

Part II analyzes the problem of a target board's fiduciary duty as the modern version of the fundamental normative issue of corporate law. It argues that the norm of shareholder wealth maximization, assumed as the starting point by those most in favor of an active and minimally regulated control …

Beyond Managerialism: Investor Capitalism?, Alfred F. Conard

University of Michigan Journal of Law Reform

Capitalism, in most large public corporations, has been subtly transformed from a system of dominance by the suppliers of capital to a system of dominance by the managers, dubbed "managerialism." In many respects, managerialism is beneficial to investors and other enterprise constituencies, since managers' rewards typically grow with the profitability of the enterprise. But managerialism permits drastic wastes of resources when managers hang on to their jobs after they have become inefficient or spend lavishly to defend themselves against takeover bids. Derivative suits, shareholder proposals, independent directors, and other prescriptions have failed to stifle managerial abuses. This is the message …

Corporations - Officers And Directors - Agreement Interfering With Management By Board Of Directors, Edward H. Hoenicke S.Ed.

Michigan Law Review

Plaintiffs, minority stockholders in a closely held corporation, asked that the court declare invalid an agreement between the majority stockholders and their "agent-directors" for the management of the business. The agreement provided that for ten years the stock of the parties to the agreement would be voted as a unit as any seven of the agents should direct or, if they could not agree, as directed by an arbitrator chosen by them. The agents were to be elected to the board of directors by the stockholders who appointed them. Under a cumulative voting provision, the parties to the agreement had …

Purchase Of Shares Of Corporation By A Director From A Shareholder, Harold R. Smith

Michigan Law Review

As suggested by the title to this paper, a discussion of the relationship between the directors of a corporation and the corporate entity is not within its scope. Neither is the lrelationship between the directors-and the entire body of the shareholders. These two subjects are generally treated in another branch of the law of corporations and generally are not governed by the same rules of law.' The purchase of shares of stock by a director from a nonofficial shareholder naturally brings into question the relationship between the director and the shareholder in his individual capacity, and not in his capacity …

Respective Rights Of Preferred And Common Stockholders In Surplus Profits, George Jarvis Thompson

Michigan Law Review

The movement in the field of co5perative commercial undertakings has been; school-book-like, a movement from the simple to the complex, from the common-la* sitaation of persons associating together to conduct a busines for profit to the modern statutory association and the corporation possessing an enormous capital ,derived from a host of individuals whose respective interests are represented -by various -classes -of transferable shares.