The Trajectory of American Corporate Governance: Shareholder Empowerment and Private Ordering Combat

Why are shareholder empowerment and activism such controversial issues in the United States today? Other common law jurisdictions, including the United Kingdom, have welcomed and encouraged greater shareholder participation and engagement in corporate governance. In the United States, however, this prospect has been met with widespread apprehension and resistance. There is a paradox here. The United States is generally regarded as the birthplace of shareholder activism, yet U.S. shareholders have traditionally possessed far fewer corporate governance rights than shareholders in other common law jurisdictions, where such rights are often guaranteed by mandatory laws. U.S. corporate law has been much more focused on protecting shareholders than enabling shareholders to participate in corporate governance, and thereby protect themselves. This article discusses the trajectory of corporate governance in the United States, with particular attention to the regulatory distinction between shareholder protection versus participation in corporate governance. In doing so, it highlights evolving shareholder governance rights in the United States against the backdrop of the shareholder empowerment and proxy access debates. The article also investigates recent U.S. developments, including the growing use by institutional investors of private ordering as a “self-help” mechanism to gain stronger participatory rights. These developments, including controversial bylaw amendments, have the potential to readjust the balance of power between shareholders and boards of directors in U.S. public corporations. They have also created a dynamic and shifting corporate governance terrain, where boards and shareholders are increasingly engaged in “private ordering combat.” The article also explores the intriguing underlying question of why shareholder empowerment and participation in corporate governance are such fraught issues in the United States, compared to some other common law jurisdictions, such as the United Kingdom. To explain this puzzle, the article looks to legal history and to the fundamentally different organizational origins of US and UK corporate law. Organizational origins matter, and divergence in those origins can lead to fundamental differences in the structure of legal regimes. The article argues that this insight is critical to understanding why shareholder empowerment and participation in corporate governance are, and are likely to remain, such contentious issues in the United States compared to other common law jurisdictions.