Shareholder Collaboration

62 Pages Posted: 7 Aug 2018 Last revised: 19 Mar 2019

See all articles by Jill E. Fisch

Jill E. Fisch

University of Pennsylvania Law School - Institute for Law and Economics, European Corporate Governance Institute

Simone M. Sepe

University of Arizona - James E. Rogers College of Law; University of Toulouse 1 - Université Toulouse 1 Capitole; Toulouse School of Economics; European Corporate Governance Institute (ECGI)

Date Written: March 1, 2019


Two models dominate the debate on the theory of the firm. Under the management-power model, decision-making power exclusively belongs to corporate insiders (officers and directors). The competing shareholder-power model contemplates increasing shareholder power to limit managerial authority. Both models are focused on managerial agency costs and address the appropriate allocation of power between insiders and shareholders to minimize these costs. Both models also assume that insiders and shareholders are engaged in a competitive struggle for corporate power. Corporate practice has moved on, however. Increasingly, the insider-shareholder dynamic is collaborative, not competitive. This Article traces the development of insider-shareholder collaboration and constructs a taxonomy of the novel collaborative model. It first explains how collaboration originated in the venture capital context and then explores the circumstances surrounding the expansion of collaboration into public companies. Most importantly, corporations today face partial information costs that, for many firms, have grown costlier than agency costs. Using insights from game theory, the Article demonstrates how collaboration promotes the production and aggregation of the partial information of insiders and shareholders, adding value that is lost under unilateral decision-making by either the board or the shareholders. The growing importance of shareholder collaboration requires rethinking several principles of corporate law. By enhancing shareholder access to information, collaboration creates the risk that shareholders may misuse that information. Similarly, shareholder influence on operational decision-making challenges doctrines that limit the fiduciary obligations of non-controlling shareholders. Finally, both shareholders and insiders may use the collaborative process to engage in collusive behavior or self-dealing.

Keywords: Corporations, corporate governance, venture capital, hedge fund activism, publicly-held companies, theory of the firm, private ordering, spectrum of shareholder collaboration, collaborative insider-shareholder model, enhancement of shareholder information, management, shareholders

JEL Classification: G34, K22

Suggested Citation

Fisch, Jill E. and Sepe, Simone M., Shareholder Collaboration (March 1, 2019). Texas Law Review (2019 Forthcoming); U of Penn, Inst for Law & Econ Research Paper No. 18-22; European Corporate Governance Institute (ECGI) - Law Working Paper No. 415/2018. Available at SSRN: or

Jill E. Fisch (Contact Author)

University of Pennsylvania Law School - Institute for Law and Economics, European Corporate Governance Institute ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-746-3454 (Phone)
215-573-2025 (Fax)

Simone M. Sepe

University of Arizona - James E. Rogers College of Law ( email )

P.O. Box 210176
Tucson, AZ 85721-0176
United States

University of Toulouse 1 - Université Toulouse 1 Capitole ( email )

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Toulouse, 31042

Toulouse School of Economics ( email )

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Toulouse Cedex, F-31042

European Corporate Governance Institute (ECGI) ( email )

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