Controlling the Corporate Controller's Misbehaviour

RILE Working Paper Series No. 2009/01

50 Pages Posted: 14 Jan 2009 Last revised: 18 May 2010

See all articles by Alessio M. Pacces

Alessio M. Pacces

Amsterdam Law School / Amsterdam Business School; European Corporate Governance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: December 31, 2008

Abstract

The corporate governance debate mainly deals with the effectiveness of techniques to protect shareholders from the controllers’ misbehaviour. This paper takes a different approach. Focussing on self-dealing, it shows that effective strategies to protect investors from expropriation differ, and some may be more efficient than others. The inefficiency of an effective discipline of self-dealing stems from the constraints it imposes on the discretion of controlling managers and shareholders. This paper shows that both the US litigation-based model and the UK governance-based model are effective against expropriation, but their efficiency can be improved. To this purpose, the paper recommends restricting the influence of non-controlling shareholders to the selection of a minority of independent directors, whose task should be limited, in turn, to monitoring and validating self-dealing. These findings can be extended from self-dealing to similar conflicts of interest that may lead to shareholder expropriation, and to their regulation in other jurisdictions.

Keywords: discretion and accountability, related-party transactions, enforcement, shareholder litigation, institutional investors, independent directors, disclosure, enforcement, standards of review, distribution of powers, discretion and accountability, shareholder litigation, independent directors

JEL Classification: G32, G34, K22, K42, L26

Suggested Citation

Pacces, Alessio Maria, Controlling the Corporate Controller's Misbehaviour (December 31, 2008). RILE Working Paper Series No. 2009/01. Available at SSRN: https://ssrn.com/abstract=1327800 or http://dx.doi.org/10.2139/ssrn.1327800

Alessio Maria Pacces (Contact Author)

Amsterdam Law School / Amsterdam Business School ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

HOME PAGE: http://www.uva.nl/profiel/p/a/a.m.pacces/a.m.pacces.html

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/alessio-pacces

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