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When the Government is the Controlling Shareholder

72 Pages Posted: 27 May 2010 Last revised: 15 May 2011

Marcel Kahan

New York University School of Law; European Corporate Governance Institute

Edward B. Rock

New York University School of Law


As a result of the 2008 bailouts, the United States Government is now the controlling shareholder in AIG, Citigroup, GM, GMAC, Fannie Mae and Freddie Mac. Corporate law provides a complex and comprehensive set of standards of conduct to protect non-controlling shareholders from controlling shareholders who have goals other than maximizing firm value. In this article, we analyze the extent to which these existing corporate law structures of accountability apply when the government is the controlling shareholder, and the extent to which federal “public law” structures substitute for displaced state “private law” norms. We show that the Delaware restrictions on controlling shareholders are largely displaced, but hardly replaced, by federal provisions. Having concluded that the existing accountability structures do not provide sufficient protection of minority shareholder interests, we examine the variety of ways (in the U.S. and elsewhere) in which government ownership has been structured in order to minimize political interference at the expense of non-controlling shareholders, including nonvoting stock, independent directors, dedicated trusts, and separate management companies. Because neither ex ante legal structures nor ex post judicial review hold much promise for controlling political interference, we are left with a choice between developing new structures of accountability and bringing this anomalous era of government control to a speedy conclusion.

Keywords: Governmental bailout, minority shareholders, firm value maximization, corporate purposes, displacement of regulatory structures with ownership influence, structuring government ownership to weaken political influence, governmental equity and control, government corporations

JEL Classification: G38, H19, H59, H81, K22, K29

Suggested Citation

Kahan, Marcel and Rock, Edward B., When the Government is the Controlling Shareholder. Texas Law Review, Vol. 89, p. 1293, 2011; U of Penn, Inst for Law & Economics Research Paper No. 10-10; NYU Law and Economics Research Paper No. 10-20. Available at SSRN:

Marcel Kahan

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212-998-6268 (Phone)
212-995-4341 (Fax)

European Corporate Governance Institute ( email )

B-1050 Brussels

Edward B. Rock (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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