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Lucian A. Bebchuk, Alma Cohen & Scott Hirst, The Agency Problems of Institutional Investors (June 1, 2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Shareholders
,
Corporate Governance
Type: Other
Abstract
We analyze how the rise of institutional investors has transformed the governance landscape. While corporate ownership is now concentrated in the hands of institutional investors that can exercise stewardship of those corporations that would be impossible for dispersed shareholders, the investment managers of these institutional investors have agency problems vis-à-vis their own investors. We develop an analytical framework for examining these agency problems and apply it to study several key types of investment managers. We analyze how the investment managers of mutual funds - both index funds and actively managed funds - have incentives to under-spend on stewardship and to side excessively with managers of corporations. We show that these incentives are especially acute for managers of index funds, and that the rise of such funds has system-wide adverse consequences for corporate governance. Activist hedge funds have substantially better incentives than managers of index funds or active mutual funds, but their activities do not provide a complete solution for the agency problems of institutional investors. Our analysis provides a framework for future work on institutional investors and their agency problems, and generates insights on a wide range of policy questions. We discuss implications for disclosure by institutional investors; regulation of their fees; stewardship codes; the rise of index investing; proxy advisors; hedge funds; wolf pack activism; and the allocation of power between corporate managers and shareholders.
Lucian Bebchuk, Scott Hirst & June Rhee, Toward the Declassification of S&P 500 Boards, 3 Harv. Bus. L. Rev. 157 (2013).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Shareholders
Type: Article
Abstract
This report provides an overview and analysis of the work that the Shareholder Rights Project (SRP) undertook on behalf of a number of institutional investors during 2012 and 2013, the SRP’s first two years of operations. During 2012 and 2013, the SRP worked on behalf of eight SRP-represented investors on board declassification proposals submitted for a vote at the 2012 and/or 2013 annual meetings of 122 S&P 500 and Fortune 500 companies, and this work has produced substantial results: 100 Negotiated Outcomes: Negotiated outcomes involving a commitment to board declassification were reached with 100 S&P 500 and Fortune 500 companies, about three-quarters of the companies receiving proposals in 2012 and/or 2013. 58 Successful Precatory Proposals: During 2012 and 2013, declassification proposals brought by SRP-represented investors received majority support at 58 annual meetings of 53 S&P 500 and Fortune 500 companies (all but three of the annual meetings in which such proposals went to a vote), with average support of about 80% of votes cast. 81 Board declassifications: A total of 81 S&P 500 and Fortune 500 companies already declassified their boards during 2012 and 2013 as a result of the work of the SRP and SRP-represented investors. These 81 companies, which have an aggregate market capitalization exceeding one trillion dollars (as of Dec, 31, 2013), represent about 65% of the companies with which engagements took place and about 60% of the S&P 500 companies that had classified boards as of the beginning of 2012. Expected Impact by End of 2014: The work of the SRP and SRP-represented investors is expected to produce a significant number of additional board declassifications during 2014 as a result of (i) management declassification proposals that will go to a vote pursuant to 2012 and 2013 agreements, (ii) companies agreeing to follow the preferences of shareholders expressed in 58 successful precatory declassification proposals, and (iii) ongoing engagement by the SRP and SRP-represented investors. We estimate that, by the end of 2014, this work will have contributed to movements towards board declassification by about 100 S&P 500 and Fortune 500 companies; this large-scale change can be expected to increase board accountability and thereby to enhance shareholder value and company performance in the affected companies. Beyond Board Declassification: The SRP’s 2012 and 2013 work also facilitated a substantial increase in successful engagement by public pension funds, and in their ability to obtain governance changes favored by shareholders. The proposals that the SRP worked in 2012 and 2013 on represented over 50% of the shareholder proposals by public pension funds that received majority support in 2012 and 2013, and over 20% of all precatory shareholder proposals (by all proponents) that received majority support in 2012 and 2013. The Shareholder Rights Project (SRP) is a clinical program operating at Harvard Law School and directed by Professor Lucian Bebchuk. The SRP works on behalf of public pension funds and charitable organizations seeking to improve corporate governance at publicly traded companies, as well as on research and policy projects related to corporate governance. Any views expressed and positions taken by the SRP and its representatives should be attributed solely to the SRP and not to Harvard Law School or Harvard University.
Lucian A. Bebchuk & Scott Hirst, Private Ordering and the Proxy Access Debate, 65 Bus. Law. 329 (2010).
Categories:
Corporate Law & Securities
Sub-Categories:
Shareholders
,
Corporate Law
,
Corporate Governance
,
Securities Law & Regulation
Type: Article