MARCEL KAHAN, New York University - School of Law
Email: kahanm@juris.law.nyu.edu
EDWARD B. ROCK, University of Pennsylvania Law School
Email: erock@law.upenn.edu

In this paper, we argue that chief executive officers of publicly-held corporations in the United States are losing power to their boards of directors and to their shareholders. This loss of power is recent (say, since 2000) and gradual, but nevertheless represents a significant move away from the imperial CEO who was surrounded by a hand-picked board and lethargic shareholders. After discussing the concept of power and its dimensions, we document the causes and symptoms of the decline in CEO power in several areas: share ownership composition and shareholder activism; governance rules and the board response to shareholder activism; regulatory changes related to shareholder voting; changes in the board of directors; and executive compensation. We argue that this decline in CEO power represent a long-term trend, rather than a temporary response to economic and political conditions. The decline in CEO power has several important implications, including implications with respect to the possibility of a regulatory backlash against certain newly empowered shareholder groups, the type of persons who will serve on corporate boards in the future, the type of shareholder initiatives that will be introduced and the corporate response to them, the convergence of corporate laws across countries, and the source of resistance to acquisitions and the legal regulation of target defenses.

FAYSAL BARRACHDI, affiliation not provided to SSRN
Email: f.barrachdi@uvt.nl

Hedge funds and private equity funds have caused a public outrage in the world's largest and most respected economies. In the public opinion these funds have been associated with terms like crowds of locusts and corporate raiders. This thesis first of all examines the role of these funds in contemporary corporate governance, evidently focusing on the central issue in corporate governance, i.e. the separation of ownership and control. Secondly, this thesis addresses the regulatory framework regarding these funds in the Netherlands. In the search for a right regulatory mix this thesis purports a regulatory three-pillar approach, including company law, contractual protection and codes of conduct, to lever the unrest in contemporary corporate governance. The author believes that a regulatory three-pillars approach is a fundamental step towards a healthier Dutch corporate governance regime that effectively nourishes hedge funds and private equity transparency.

ANDREA ZANONI, University of Genoa - Law School
Email: andrea.zanoni@unige.it

Hedge funds have become lately active also in the market for corporate control. Their active involvement has been propelled by a tactic allowing them to decouple voting rights from economic ownership and labelled in the literature as "encumbered shares" or "empty voting".

The goal of this Article is twofold. On the one hand, I address the impact of hedge funds' activism on the financial markets and on the portfolio companies. In general terms, hedge funds' activism should be seen as a neutral element. After a cost-benefit analysis, I show that the costs implied by hedge funds' activism are at least offset by the relevant benefits. Data reported by recent empirical studies seem to back this conclusion. However, when empty voting is used, a potential risk of incentives distortion arises, particularly when empty voting is coupled with a conflicted position of the hedge fund which stands on both sides of the transaction, as illustrated by the famous King-Mylan case. In addition, I show with a numerical example that under certain circumstances empty voting is likely cause and/or facilitate value-destroying (inefficient) mergers.

On the other hand, the Article pursues a policy approach. I do not present ad hoc policy measures based either on disclosure or voting abstention proposals, as already done in literature. Rather, I frame empty voting used in merger and acquisition transactions within the current Delaware corporate law standards of review. I indeed propose a functional approach based on the fiduciary duties doctrine which is applicable to empty voting regardless of the technical device employed. It endorses the direct involvement of the disinterested shareholders (i.e. the shareholders other than the empty voters) and posits that an approval of the transaction by the majority of disinterested shareholders should trigger a business judgment presumption.

LEE A. HARRIS, University of Memphis - Cecil C. Humphreys School of Law
Email: laharris@memphis.edu

Shareholder-led campaigns to install new leadership at U.S. firms occur too rarely and, when they do occur, are led by the same, boring cast of characters too often. The funding rules for contested corporate elections are highly tilted toward the "incumbents" (i.e., firm directors) and against "challengers" (i.e., campaigns launched by shareholders). Additionally, the rules promote excessive and profligate spending, with no real check or good estimate of reasonable levels of expenditures. This Article presents empirical evidence that the lop-sided nature of the rules reduces the number of contested corporate elections overall, particularly those that, but for the rules, would originate from average shareholders.

Meanwhile thoughtful solutions to reinvigorate shareholders' ability to participate in firm affairs through corporate elections have come from all corners, from prominent corporate law scholars to Delaware judges to investor-activists to the SEC, the main regulatory authority for corporate entities. As will be shown in this Article, however, all these previous proposals overlook a ready exemplar for how to conduct elections when costs of campaigning are high, voters dispersed widely, and incumbents have a natural, built-in advantage: the public finance system for presidential candidates. In fact, the thirty-year old Presidential Campaign Fund, a system of public funding for eligible presidential candidates, has been an arguable success. This public fund has raised nearly $2 billion dollars for campaign expenditures, won approval from millions of taxpayers, and provided funds for almost all major candidates (with only a handful of notable exceptions). The system of public financing for presidential campaigns provides a remarkably sturdy roadmap for changing the system of contested corporate elections. That is, our public campaign system creates a baseline set of principles that may resolve several of the prickliest questions in contested corporate elections.