June 2021 Global Corporate Governance Colloquium at Yale University

A June 2021 Global Corporate Governance Colloquium at Yale University (here, which includes links to each of the articles described below) featured a wide range of interesting notes, including these four:

a. In an article entitled “THE CORPORATE GOVERNANCE MACHINE”, by Dorothy S. Lund & Elizabeth Pollman, the authors provide an original descriptive account of the “corporate governance machine”—a complex governance system in the United States composed of law, markets, and culture that orients corporate decision making toward shareholders. It describes the key players in the system and shows how the machine powerfully drives corporate behavior and also dictates the form of corporate regulation. It argues that absent a large shock to the system such as a major federal intervention,10 the corporate governance machine will likely impede a true paradigm shift away from shareholderism and toward stakeholderism.

b. An article entitled “Retail Shareholder Participation in the Proxy Process: Monitoring, Engagement, and Voting”, by Alon Brav, Matthew D. Cain, and Jonathon Zytnick, studies retail shareholder voting using a detailed and nearly universal sample of anonymized retail shareholder voting records over the period 2015-2017. They find that, contrary to public perception, retail shareholders are an influential voting bloc, affecting as many proposal outcomes as the Big Three asset management firms despite lower voting participation and less uniform voting.

c. In “Systematic Stewardship”, Jeffrey N. Gordon frames a normative theory of stewardship engagement by large institutional investors and asset managers in terms of their theory of investment management – “Modern Portfolio Theory” -- which describes investors as attentive to both systematic risk as well as expected returns. He argues that because investors want to maximize risk-adjusted returns, it will serve their interests for asset managers to support and sometimes advance shareholder initiatives that will reduce systematic risk. “Systematic Stewardship” provides an approach to “ESG” matters that serves both investor welfare and social welfare and fits the business model of large diversified funds, especially index funds. The analysis also shows why it is generally unwise for such funds to pursue stewardship that consists of firm-specific performance-focused engagement: Gains (if any) will be substantially “idiosyncratic,” precisely the kind of risks that diversification minimizes.             

d. In “FOR WHOM CORPORATE LEADERS BARGAIN”, Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita, study how corporate leaders in fact used their discretion in transactions in the past two decades governed by constituency statutes that give corporate boards leeway to consider stakeholder interests. Using hand-collected data, they provide a detailed analysis of more than one hundred cases governed by such statutes in which corporate leaders negotiated a company sale to a private equity buyer.  They find that corporate leaders have used their discretion to obtain gains for shareholders, executives, and directors. However, despite the clear risks that private equity acquisitions often posed for stakeholders, corporate leaders generally did not use their discretion to negotiate for any stakeholder protections. They find that in the small minority of cases in which some stakeholder protections were formally included, they were generally cosmetic and practically inconsequential.