Lucian Bebchuk

Big shareholders do not always play nice. They strip away founders’ responsibilities. They side with activist hedge funds. They vote for takeovers even when a board is resisting. Those are the types of shareholders that Peter McCausland encountered toward the end of his three-decade reign at the industrial gas distributor Airgas. By 2015, he could not take it anymore. He searched globally for a buyer...The ruling was — and remains — controversial. “The court’s case allowing the indefinite use of the poison pill for this purpose established an unfortunate precedent,” said Lucian A. Bebchuk, director for the Program on Corporate Governance at Harvard Law School. “There is significant empirical evidence indicating that, on the whole, the current expansive use of takeover defenses is detrimental to the interests of shareholders and the economy.”

Your company could be doing better. The stock is in the doldrums, and the price-to-book ratio is low. On a variety of financial measures — shareholder returns, revenue growth, operational costs, and so on — the company is underperforming its peers. Cash flow is reasonably healthy, but one of the divisions is starting to falter. Adding insult to injury, management won the last say-on-pay vote by less than a large margin. ...Once activists cash out, how will their targets perform? “The jury is still out,” says Grossman. Despite claims that activist investors are “pumping and dumping,” a recent study of activist interventions between 1994 and 2007 by Harvard Law School professor Lucian Bebchuk and others found that Tobin’s Q and return on assets were consistently higher three, four, and five years following the interventions. Similarly, a McKinsey study of 400 activist campaigns against large U.S. companies found that the median campaign reversed a downward trajectory in target performance, and created a sustained increase in shareholder returns.

Aging media mogul Sumner Redstone stepped down as executive chairman of Viacom on Thursday and was replaced by CEO Philippe Dauman, a move that immediately disappointed investors. Although the decision mimicked a similar move at sister company CBS, Thursday's action has the potential to set off a future board fight...Lucian Bebchuk, a Harvard law professor and director of its program on corporate governance, said the board conflict highlights the problems of companies with two classes of stock — one set that holds voting power, and another that does not. He said in an email that Viacom's corporate structure is now "highly problematic and fraught with risks for public investors." "The company's CEO is unaccountable to public investors and accountable only to a person whose health prevents him from actively monitoring the affairs of the company," Bebchuk said.

...After decades of being treated as boorish gate-crashers, activist investors are infiltrating the boardrooms of large companies like never before. This year activists launched more campaigns in the U.S.—360 through Dec. 17—than any other year on record, according to FactSet...At the same time, changes in corporate governance were making it easier for activists to win board seats. Between 2011 to 2014, a group at Harvard University led by professor Lucian Bebchuk campaigned to get more than 100 major companies to put their entire boards up for annual election, instead of staggering directors in multiyear terms.

An op-ed by Lucian A. Bebchuk and Robert J. Jackson Jr. The omnibus budget agreement adopted by Congress includes a provision that prevents the Securities and Exchange Commission from issuing a rule next year that would require public companies to disclose their political spending. This unusual Congressional intervention in S.E.C. rule-making is a troubling development both for investors and for the agency.

Payments made to officers, directors and other “insiders” in control of a distressed corporate debtor are closely scrutinized by other stakeholders as well as the media in larger chapter 11 cases. Bankruptcy rules require companies to disclose insider payments during the 12-month period leading up to a bankruptcy filing. ...Whatever the merits of the disclosure debate may be, the debate is swept up in the larger controversy surrounding executive pay faced by healthy and distressed businesses alike. For example, in their controversial treatise on the unfulfilled promise of executive compensation, Lucian Bebchuk and Jesse Fried weave a detailed account of how structural flaws in corporate governance have enabled managers to influence their own pay and have produced widespread distortions in pay arrangements. They believe that directors must focus on shareholder interests and operate independently from the executives whose compensation they set by making directors more directly accountable to shareholders. In rebuttal, critics point to executive compensation practices of distressed businesses to demonstrate that reducing “agency costs”—the problem created by the separation of ownership and control in larger public companies which is mitigated in distressed situations through the consolidation of ownership interests and assertion of control by sophisticated investors—doesn’t lead to material changes in executive compensation arrangements.

Scathing commentary about the U.S. Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission has tended to focus on the court’s refusal to restrict corporate political spending. As you know, the justices struck down campaign finance reforms as an unconstitutional violation of corporations’ free speech rights, triggering an avalanche of predictions that corporate donors would wield outsized political influence. The other free speech beneficiaries of Citizens United – labor unions also subject to the invalidated campaign finance restrictions – haven’t been the subject of nearly as much fear and loathing. That’s going to change, at least a little, later this term when the Supreme Court hears Friedrichs v. California Teachers Association...The point of the amicus brief, according to law professor John Coates of Harvard, was to highlight the relative rights of union beneficiaries and shareholders, particularly because in this case, the justices are being asked to give non-union members even more control over political expenditures they don’t support. “It seemed like a good opportunity to intervene – even better than a corporate case,” said Coates, who said he wrote the initial draft of the brief and circulated it to likely co-signers. He said he was pleasantly surprised that so many corporate law professors – 19 in all – ended up joining a brief in a case that nominally has nothing to do with corporate law. (Among the amici are Lucian Bebchuk of Harvard...)

Activist hedge funds can count on a number of supporters in academia and in the media rising up in defense of their actions. No doubt activist hedge funds have found their most persistent academic supporters in Professor Lucian Bebchuk of the Harvard Law School and his co-authors. In several papers, but most particularly in the Bebchuk, Brav and Jiang (2013) paper, the authors make several claims, which are summarized in Bebchuk’s op-ed piece in the Wall Street Journal: “Our comprehensive analysis examines a universe of about 2,000 hedge fund interventions during the period of 1994-2007 and tracks companies for five years following an activist’s arrival...Basically, Bebchuk et al’s argue that their vast base of empirical data does not support the claims made by opponents of activist hedge funds.

Shareholders are hitting a wall with some major companies in their effort to persuade them to disclose how they spend corporate money to support political candidates. According to the Center for Political Accountability, at least one in 10 big publicly traded companies doesn’t reveal details of its donations to electoral candidates, parties or causes on its website, where investors could easily find it...Many investors want to know how and where companies put corporate funds to work, said Lucian Bebchuk, a professor at Harvard Law School. “Without disclosure and accountability, companies may well spend funds on political causes that insiders favor but shareholders do not.”

Corporations are turning to the nation’s biggest business lobby to help fend off activist investors such as Dan Loeb and Bill Ackman. The U.S. Chamber of Commerce is forming a coalition to make sure “long-term value creation” drives public companies’ decisions, according to a letter it sent last week to Securities and Exchange Commission Chair Mary Jo White. The group plans to weigh in on regulations that affect corporate governance, the letter said...If the chamber’s coalition wants to “facilitate long-term value creation, they should support reforms that strengthen shareholder rights and oppose arrangements that insulate managements from shareholders,” said Lucian Bebchuk, a professor at Harvard Law School.

It was called the “blood oath”. The management team of Sandy Weill, an architect of the modern Citigroup and mentor to Jamie Dimon, had to commit not to sell any shares until they left. In their decades as partnerships, Goldman Sachs and Morgan Stanley bankers had no need to open their veins. Holding equity until retirement was a binding legal restraint. But that practice is not universal on Wall Street. A Financial Times analysis of insider selling at the six biggest US banks since the 2008 crisis shows that many of the current crop of executives have offloaded millions of dollars worth of stock each year...However, Lucian Bebchuk, director of the corporate governance programme at Harvard Law School and a former adviser to the US government’s “pay tsar”, argued there should be tighter restrictions on the amount of annual selling by executives. “When bank executives have substantial freedom to unload equity incentives given to them as part of their compensation, and when executives can be expected to make significant use of their freedom to unload such equity incentives, the executives’ pay arrangements produce distorted incentives to engage in excessive risk-taking,” he said.

When Sardar Biglari, CEO of Biglari Holdings, won a hotly contested shareholder proxy in April, investors feared his next move would be to cement control over the company. They were right, and a review of Biglari’s actions in recent months shows he did so with the help of leading Wall Street investment banks....“The tender offer is an aggressive entrenchment move aimed at enabling the CEO to use the shareholders’ money to gain control over the company,” says Lucian Bebchuck, director of the program on corporate governance at Harvard Law School. “Given that the CEO’s management and performance has been controversial, it is especially important for this company’s shareholders to retain the power to vote for a change of control. Unfortunately, if the tender offer is successful, the CEO would become fully entrenched,” he adds.

It has been submitted as a rulemaking petition twice since 2011, garnered 1.2 million comment letters, sparked a superhero-themed ad campaign, and is the subject of a current lawsuit. The latest push to get the Securities and Exchange Commission to act on a largely ignored demand that companies disclose political contributions and spending on lobbyists: pressure from former commissioners...The push for political spending disclosures initiated with a Petition for Rulemaking filed by a team of 10 prominent law professors. Robert Jackson, an associate professor at Columbia Law School, and Harvard Law School Professor Lucian Bebchuk spearheaded the effort in 2011.

Americans have missed out on investment gains, discouraged by an uneven playing field created by Wall Street. U.S. stocks have more than tripled since bottoming out in March 2009 during the Great Recession, rising in value by a staggering $12.8 trillion. But the average American household has been left behind. Most of the gains went to the wealthy and institutional investors including investment banks and hedge funds. Fewer than half of U.S. households own stocks either directly or indirectly, down from a peak of more than 53% in 2007...A paper by Harvard Law School professor Lucian Bebchuk found that CEOs who earn more than the average “pay slice” of 35% of a firm’s total compensation for its top five executives significantly underperform their peers. That is because such companies make poor acquisition decisions, reward their CEOs for “luck” when industry conditions improve, fail to hold CEOs accountable for poor performance, and grant options that are timed “opportunistically,” Bebchuk found.