Comment on “Presidents and the Politics of Structure”

Terry Moe and Scott Wilson\u27s (1994) theory elaborating on the president\u27s countervailing institutional motivation to strengthen and consolidate the bureaucracy under presidential control is examined. The omission of political parties and courts from the analysis could have altered some of their conclusions on comparative institutional advantages

Does Confidential Proxy Voting Matter?

Confidential voting in corporate proxies is a principal recommendation in activist institutional investors' guidelines for corporate governance reforms. This paper examines the impact of the adoption of confidential voting on proposal outcomes through a panel data set of shareholder and management proposals submitted from 1986-98 to 130 firms that adopted confidential voting in those years. Institutional investors promoting confidential voting maintain that private sector institutions have conflicts of interest that prevent them from voting against management even though to do so would maximize the value of their shares; they contend that anonymous ballots will enable such investors to vote their true interest, and thereby anticipate reduced support for management proposals and increased support for shareholder proposals. The paper finds, contrary to confidential voting advocates' expectations, that adoption of confidential voting has no significant effect on voting outcomes. Voting outcomes are best explained by proposal type; neither institutional nor insider ownership, nor prior performance, significantly affect the level of support a proposal receives. Moreover, the conflict of interest hypothesis is not supported in the data, as private institutional holdings post-adoption of the voting reform do not affect the support level for proposals. Confidential voting also does not affect firms' stock performance. The results suggest that institutional investor initiatives directed at confidential voting are not a fruitful allocation of investors' resources

The States as a Laboratory: Legal Innovation and State Competition for Corporate Charters

Corporate law is an arena in which the metaphor of the states as a laboratory describes actual practice, and, for the most part, this is a laboratory that has worked reasonably well. The goal of this Article is to map out over time the diffusion of corporate law reforms across the states. The lawmaking pattern we observe indicates a dynamic process in which legal innovations originate from several sources, creating a period of legal experimentation that tends to identify a statutory formulation that is thereafter adopted by the vast majority of states. Delaware and the Model Act quite often work in tandem. But there are occasions when they advance differing legal rules, accounting for some of the diversity in corporation codes that we observe

Less is More: Making Institutional Investor Activism a Valuable Mechanism of Corporate Governance

Institutional investors have increasingly engaged in corporate governance activities, introducing proxy proposals and negotiating with management, with a goal of improving corporate performance. As shareholder activism has increased, financial economists have sought to measure its effect on performance. This Article reviews the corporate finance literature on institutional investors\u27 activities in corporate governance and uses the findings of the empirical literature to inform normative recommendations for the proxy process. In brief there is an apparent paradox: notwithstanding the development of shareholder activism and commentators\u27 generally positive assessments of it, the empirical research indicates that such activism has little or no effect on targeted firms\u27performance. This implies that activist institutions ought to reassess their agendas, in order to use their resources more effectively. The Article takes a two-pronged approach to furthering this aim. First, it suggests a mechanism of internal control, whereby funds would engage in periodic review of their shareholder-activism programs to identify the most fruitful governance objectives. Second, it seeks ways to provide incentives to undertake such internal reevaluations, advocating elimination or significant reduction of the subsidy of proposal sponsorship under the SEC rules unless a proposal achieves substantial voting support orpermittingfirms\u27 shareholders to choose what level of subsidy they wish to provide to proposal sponsors. The estimated savings from eliminating the subsidy for proposals that fail to receive at least 40% of the votes ranges from $293 million to$1.9 billio

Empowering Investors: A Market Approach to Securities Regulation

The U.S. securities laws have repeatedly been assailed as burdensome or ineffective. Reform efforts have conversely been attacked for undermining aneffective mechanism by which shareholders can discipline management. Moreover, even reformers have been dissatisfied with the effectiveness of their product. For example, after enacting the Private Securities Litigation Reform Act of 1995, members of Congress became concerned that their efforts to rein in frivolous private lawsuits under the federal securities laws were being circumvented by state court filings and introduced legislation to preempt such action. There is some validity to their concern: In a report to President Clinton on the impact of the 1995 Act, the Securities and Exchange Commission (SEC) cited preliminary studies indicating a decrease in federal court filings and an increase in state court filings. This Article contends that the current legislative approach to securities regulation is mistaken and that preemption is not the solution to frivolous lawsuits

A Cautionary Note on Drawing Lessons from Comparative Corporate Law

Mark Roe\u27s article comparing German, Japanese, and U.S. corporate governance extends his important research concerning the effect of political constraints on the organization of U.S. corporations. In this latest publication, Roe painstakingly compares governance arrangements, highlighting the variability in business organization that exists across nations, to obtain guidance for reforming U.S. institutions. This is valuable comparative institutional research, but the lesson to be drawn from the mutability of the corporate form is opaque. As Roe suggests, the legal and institutional differences across the three nations make it difficult to ascertain whether one approach to corporate governance is superior to another and whether a superior organizational form could be successfully transplanted into another setting. Yet without a means to make comparative judgments, the likelihood that helpful lessons can be drawn from other nations\u27 experiences for reforming our own institutions is diminished, and the rationale for making the comparisons in the first place becomes problematic

The Political Dynamics of Derivative Securities Regulation

The U.S. regulation of derivative securities-financial instrumentswhose value is derived from an underlying security or index of securities-isdistinctive from that of other nations because it has multiple regulators forfinancial derivatives and securities. Commentators have debated whethershifting to the unitary regulator approach taken by other nations would bemore desirable and legislation to effect such a change has been repeatedlyintroduced in Congress. But it has not gotten very far. This article analyzesthe political history of the regulation of derivative securities in the UnitedStates, in order to explain the institutional difference between the U.S.regime and other nations\u27 and its staying power. It examines the fourprincipal federal regulatory initiatives regarding derivative securities (theFuture Trading Act of 1921, the Commodity Exchange Act of 1936, theCommodity Futures Trading Commission Act of 1974, and the FuturesTrading Practices Act of 1992), by a narrative account of the legislativeprocess and a quantitative analysis of roll-call votes, committee-hearingwitnesses, and issue salience

What Went Wrong with Directors\u27 and Officers\u27 Liability Insurance?

Corporate boards are widely perceived as having experienced a severe liability insurance crisis. After several years of expanding coverage and falling prices, starting in late 1984- the market for directors\u27 and officers\u27 (D&O) liability insurance changed dramatically: premiums skyrocketed, deductibles increased, and coverage was reduced. There are reports of directors resigning because their firms had lost insurance coverage and of individuals declining invitations to serve on boards in increasing numbers. In accord with the reported anecdotes is a reversal of a two-decade trend in board composition, as the proportion of outside directors, individuals not employed by the corporation, decreased. Management\u27s perception of an insurance problem is further evident in the shift in reasons firms provide for not carrying D&O insurance. In 1984, the most frequently stated reason for not purchasing such insurance was that there was no need for it, whereas in 1987 the main reason was affordability

A Comment on Information Overload, Cognitive Illusions, and Their Implications for Public Policy

The papers by Grether, Schwartz, and Wilde (GSW) and by Edwardsand von Winterfeldt (EW) provide us with excellent syntheses offascinating literatures that are of importance to anyone interested inhuman behavior. I learned a great deal from these papers and find myselfpersuaded by GSW\u27s contention that information overload is not aserious issue for consumer law and by EW\u27s conclusion that cognitiveprocesses are, in fundamental ways, learned intellectual skills. However,viewing the most useful role of a commentator to be that of an irritatingtroublemaker, my remarks will primarily be directed to what I believeare the more problematic aspects of their positions