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On the Role and Regulation of Private Negotiations in Governance


Joseph W. Yockey


University of Iowa College of Law

September 3, 2009

Illinois Public Law Research and Legal Theory Research Paper No. 09-01
U Illinois Law & Economics Research Paper No. LE09-020
South Carolina Law Review, Forthcoming

Abstract:     
Developments in corporate law continue to give shareholders greater levels of power over public companies. Instead of using their power to seek changes within firms through such traditional means as proxy contests and litigation, shareholders are increasingly relying on private negotiations with directors as a key component of their governance activities. Regulations enacted in response to the recent financial crisis will likely trigger even more widespread use of negotiations in the years to come.

In this Article, I analyze the legal and policy implications generated by the use of private negotiations as a means of corporate governance. I make two related claims. First, I contend that negotiations provide shareholders and boards with several unique benefits that make them a more desirable method for resolving intra-firm differences than traditional means of corporate communication. In this sense, negotiations add value by filling a governance gap. Secondly, however, I argue that board-shareholder negotiations may never realize their full potential in governance due to current restrictions on corporate speech – namely, the SEC’s Regulation FD. The way in which Regulation FD impedes private negotiations stands at odds with many of the SEC’s own policy goals. To address this tension, additional regulatory intervention will be required for negotiations to continue to play a valuable role in governance.

Number of Pages in PDF File: 58

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Date posted: July 25, 2009 ; Last revised: September 25, 2009

Suggested Citation

Yockey, Joseph W., On the Role and Regulation of Private Negotiations in Governance (September 3, 2009). Illinois Public Law Research and Legal Theory Research Paper No. 09-01; U Illinois Law & Economics Research Paper No. LE09-020; South Carolina Law Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1438793 or http://dx.doi.org/10.2139/ssrn.1438793

Contact Information

Joseph W. Yockey (Contact Author)
University of Iowa College of Law ( email )
Boyd Law Building
Iowa City, IA 52242
United States
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