Shareholder Voting and the Bundling Problem in Corporate Law

Abstract:     
I consider the characteristics, limits, and promise of shareholder voting as a corporate control mechanism that has evolved to limit director deviance from shareholder wealth maximization. Recently, corporate-law reformers led by Professor Lucian Bebchuk have proposed that shareholders be allowed to make certain major corporate decisions on their own initiative. They contend that under current law, shareholder voting is ineffective because directors can bundle votes on corporate actions (paying a dividend, for example) with the continued service of the incumbent senior-management team. I show that this bundling problem is illusory, offer an alternative explanation of shareholder voting's ineffectiveness, and demonstrate that on this alternative explanation shareholder initiative would not make shareholder voting more effective. I conclude that adopting shareholder initiative would likely reduce shareholder wealth.

Number of Pages in PDF File: 68

Keywords: Corporation, corporate law, corporate governance, shareholder, voting, bundling, board, directors, shareholder wealth maximization, empowering shareholders

JEL Classification: D20,D23,D70,D71,G10,G30,G31,G32,G34,G38,K22

Accepted Paper Series