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Hedge funds have become active in corporate governance. They push for changes in strategy and the adoption of specific business plans. Their tactics include buying shares, conducting public campaigns, lobbying managers and other shareholders, seeking representation on the board of directors, and sometimes running a proxy contest.
In response, boards have adopted a variety of “defensive measures” including deploying “poison pill” shareholder rights plans against activists.
This article provides a comprehensive policy and doctrinal analysis of the use of poison pills again activists in corporate governance contests (as distinguished from corporate control contests). We argue that, because of the significance of the specific design features – features that have so far received little judicial attention – it is increasingly important to scrutinize pills to assure that they are targeted to address legitimate objectives. Various design features of a pill interact and features that may be harmless in pills designed to fend off a hostile takeover are unjustifiable in pills employed against an activist hedge fund. While a board, acting in good faith, should be permitted to use a pill to preserve and perfect the shareholder decision-making process, it should, in doing so, act as a “neutral election board.”
We are witnessing a quiet but quick transformation of corporate governance. The rise of digital technologies and social media are forcing companies to reconsider how they organize themselves and structure firm governance.
What is...Read more
Passively managed index funds now hold over 25% of U.S. mutual fund and ETF assets. The rise of index investing raises fundamental questions about monitoring and corporate governance. We examine the voice and exit mechanisms and find that...Read more
We analyze rights offerings and public offerings in a setting where better informed current shareholders strategically choose to subscribe. When all current shareholders have wealth to participate, rights offerings achieve the full information...Read more
We study retail shareholder voting using a detailed and nearly universal sample of anonymized retail shareholder voting records over the period 2015-2017. Contrary to public perception, we find that retail shareholders are an influential voting...Read more