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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. U.S. corporate law has traditionally been much more focused on protecting shareholders than enabling shareholders to participate in corporate governance.

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, the Article highlights evolving shareholder governance rights in the United States against the backdrop of the shareholder empowerment and proxy access debates. It 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 what the Article labels “private ordering combat.”

The Article 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 U.S. and U.K. 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.

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