Corporate Darwinism: Disciplining Managers in a World with Weak Shareholder Litigation

49 Pages Posted: 29 Aug 2015 Last revised: 13 Dec 2016

See all articles by James D. Cox

James D. Cox

Duke University School of Law

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Date Written: December 12, 2016


Because representative shareholder litigation has been constrained by numerous legal developments, the corporate governance system has developed new mechanisms as alternative means to address managerial agency costs. We posit that recent significant governance developments in the corporate world are the natural consequence of the ineffectiveness and inefficiency of shareholder suits to address certain genre of managerial agency costs. We thus argue that corporate governance responses evolve to fill voids caused by the inability of shareholder suits to monitor and discipline corporate managers.

We further claim that these new governance responses are themselves becoming stronger due in part to the rising concentration of share ownership of public companies. Share ownership has steadily evolved so that there are now a significant number of large blockholders at most public companies. This growing concentration of ownership in public companies has the twin effects of reducing the costs of collective action and increasing the likelihood that an owner exists who will have a sufficient economic interest to embrace improved governance as a wealth-increasing strategy.

Finally, the increasing concentration of ownership of public companies has the effect of making governance responses efficient and effective, a response that would not have been observed were ownership not concentrated. Thus, we not only argue that concentration increases activism among this growing group of blockholders but also that concentrated ownership ushers in new methods to address agency costs and makes those methods effective.

Keywords: Corporate Voting

JEL Classification: G30, K22

Suggested Citation

Cox, James D. and Thomas, Randall S., Corporate Darwinism: Disciplining Managers in a World with Weak Shareholder Litigation (December 12, 2016). North Carolina Law Review, Vol. 95, No. 19, 2016; European Corporate Governance Institute (ECGI) - Law Working Paper No. 309/2016; Vanderbilt Law and Economics Research Paper No. 15-20; Duke Law School Public Law & Legal Theory Series No. 2015-46. Available at SSRN: or

James D. Cox

Duke University School of Law ( email )

210 Science Drive
Box 90362
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919-613-7231 (Fax)

Randall S. Thomas (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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