Director Primacy Research Articles

Long-Term Bias and Director Primacy


 
 
 In an important recent contribution to the short-termism debate, Professors Michal Barzuza and Eric Talley challenge what they call an “emerging consensus in certain legal, business, and scholarly communities . . . that corporate managers are pressured unduly into chasing short-term gains at the expense of superior long-term prospects.” See Michal Barzuza & Eric Talley, Long-Term Bias, 2020 COLUM. BUS. L. REV. 104. Instead, Barzuza and Talley contend that “corporate managers often fall prey to long-term bias—excessive optimism about their own long-term projects.”
 This article is an invited comment on Barzuza and Talley’s article. Subject to various quibbles raised herein, I broadly concur with Barzuza and Talley’s argument that corporate directors and officers can be biased towards long-term projects and, accordingly, may reject short-term projects offering higher returns.
 But what law reforms follow logically from their conclusion, if any? With respect to judicial review, I want to differ with Barzuza and Talley on three points. First, I believe Barzuza and Talley overstate the risk of judicial intervention. Second, they fail adequately to distinguish between directors and managers, even though that distinction is central to the application of Delaware law. Third, I believe their analysis implies that judges should retain the deference to director decisionmaking inherent in doctrines such as the business judgment rule and intermediate review.
 
 
 
 With respect to encouraging shareholder activism, I argue that the responsibility for policing managerial hyperopia (or myopia, for that matter) should be assigned to the board of directors, not the shareholders. Heterogenous shareholders lack the proper incentives and knowledge to properly police management.
 
 
 
 
 

Shifting Influences on Corporate Governance: Capital Market Completeness and Policy Channeling

Corporate governance scholarship is typically portrayed as driven by single factor models, for example, shareholder value maximization, director primacy or team production. These governance models are Copernican; one factor is or should be the center of the corporate governance solar system. In this essay, we argue that, as with binary stars, the shape of the governance system is at any time the result of the interaction of two central influences, which we refer to as capital market completeness and policy channeling. In contrast to single factor models, which reflect a stable normative statement of what should drive corporate governance, in our account the relation between these two governance influences is dynamic. Motivated by Albert Hirschman’s Shifting Involvements, we posit that all corporate governance systems undergo repeated shifts in the relative weights of the two influences on the system. Capital market completeness determines the corporate ownership structure and privileges shareholder governance and value maximization by increasing the capacity to slice risk, return, and control into different equity instruments. The capability to specify shareholder control rights makes the capital market more complete, tailoring the character of influence associated with holding particular equity securities and its reciprocal, the exposure of management to capital market oversight. Policy channeling, the real government’s instrumental use of the corporation for distributional or social ends, pushes the corporate governance gravitational center toward purposes other than maximizing shareholder value. We show that this pattern is not limited to a particular country, and illustrate our argument by tracing the cyclical reframing of Berle and Means’ thesis in the U.S., Japan’s sluggish shift from policy channeling in its postwar heyday toward capital market completeness under the Abenomics reforms, and the distinctive case of China, where capital market completeness has itself been used as a policy channeling instrument under the pervasive influence of the Chinese Communist Party, creating the world’s most stakeholder-oriented system of corporate governance. We close by examining the means through which the current shift toward policy channeling in U.S. and U.K. corporate governance is taking place – the “stewardship” movement and the debate over “corporate purpose.” We view both as a reaction to the reduced managerial discretion caused by the reconcentration of ownership in the hands of institutional investors, and analyze factors suggesting that this reform movement, like others before it, is likely destined to result in a disappointment-driven shift in the opposite direction, what we label a shifting influence.

Compliance by Fire Alarm: Regulatory Oversight Through Information Feedback Loops

This article contributes to the growing body of compliance law theory and scholarship. It does so by introducing a new and third approach to compliance called the fire alarm approach. This approach is grounded in the theoretical perspectives of negotiated governance and director primacy. It also contrasts but complements two other well-known compliance approaches discussed by scholars; the policing and architectural approaches. The fire alarm approach is executed throughout the compliance system that includes regulators, firms, executives, and third-party relationships. A virtue of the fire alarm approach is that it helps reduce agency costs by increasing transparency and information flows across the various system elements. This is achieved through what are called information feedback loops. These information flows, or feedback loops, reduce agency costs that lead to opportunism, shirking of duties and conflicts of interest. This in turn, promotes the goals of regulation that are designed to ensure trust in the marketplace and the protection and integrity of public welfare, health and safety. Part I discusses the fundamental problem of compliance as an agency cost problem related to information asymmetries. This part will examine how each subsystem within the compliance system generates its own unique set of agency costs. Information feedback loops are necessary to address the significant information asymmetries created by the various principal-agent relationships that inure within the compliance system. Part II discusses the policing and architectural compliance approaches. These two approaches are vital yet fail to capture the entire portrait of effective compliance. Part III introduces the fire alarm approach to compliance that has been neglected in the scholarly literature. Part IV describes information loops and provides a list of examples that can reduce agency costs and improve the compliance system. Part V discusses various theoretical, normative and policy implications that flow from this analysis.

Perceptions of shareholders and directors on corporate governance: what we learn about director primacy

AbstractThis paper compares shareholder and director perceptions since the financial crisis on what constitutes effective corporate governance. We find three issues on which they have differing perceptions of good corporate governance: multiple directorships, provision of non‐audit services and CEO duality, and one issue on which shareholders express concern: directors' tenure. Our results highlight the need for regulations and recommendations to more subtly define good corporate governance practices in these areas. Our results also support the theory of director primacy, providing empirical evidence that this description of corporate power is accurate even for issues on which shareholders and directors differ.

From Corporate Law to Corporate Governance

This essay is a contribution to the forthcoming Oxford University Press Handbook of Corporate Law and Governance edited by Jeffery Gordon and Georg Ringe. In the 1960s and 1970s, corporate law and finance scholars recognized that neither discipline was doing a very good job of explaining how corporations were really structured and performed. For legal scholars, Yale Law School professor and then Stanford Law School dean Bayless Manning confessed that corporate law has “nothing left but our great empty corporation statutes – towering skyscrapers of rusted girders, internally welded together and containing nothing but wind.” Michael Jensen and William Meckling made a similar comment with respect to finance. The theory of the firm was an “empty box” or a “black box” that provided no theory about “how the conflicting objectives of the individual participants are brought into equilibrium.” The result of Jensen and Meckling’s seminal reframing of corporate law in agency cost terms, and so into something far broader than disputes over statutory language, was that both Manning’s empty skyscrapers and Jensen and Meckling’s empty box began to be filled.The essay proceeds by tracking how corporate law became corporate governance – from legal rules standing alone to legal rules interacting with non-legal processes and institutions – through three somewhat idiosyncratically chosen but nonetheless related examples of how we have come to usefully complicate the inquiry into the structures that bear on corporate decision-making and performance. Part I frames the first level of complication in moving from law to governance by defining governance broadly as the company’s operating system, a braided framework encompassing legal and non-legal elements. Part II then adds a second level of complication by treating corporate governance dynamically: corporate governance becomes a path dependent outcome of the tools available when a national governance system begins taking shape, and the process by which elements are added to the governance system going forward – driven by what Paul Milgrom and John Roberts call “supermodularity.” That characteristic reads importantly on both the difficulty of corporate governance, as opposed to corporate law, reform and the non-intuitive pattern of the results of reform: significant reform leads to things getting worse before they get better. Part II then further complicates corporate governance by expanding it beyond the boundaries of the corporation, treating particular governance regimes as complementary to other social structures – for example, the labor market, the capital market and the political structure – that together define different varieties of capitalism. Next, Part III considers commonplace, but I will suggest misguided, efforts to take a different tack from Parts I and II: to simplify rather than complicate corporate governance analysis by recourse to now familiar single factor analytic models: stakeholder theory, team production, director primacy, and shareholder primacy. Part III suggests that these reductions are neither models nor particularly helpful; they neither bridge the contextual specificity of most corporate governance analysis nor address the necessary interaction in allocating responsibilities among shareholders, teams and directors. As well, these “models” are static rather than dynamic, a serious failing in an era in which the second derivative of change is positive in many business environments and Schumpeter seems to be getting the better of Burke. Part IV concludes by examining the importance of a corporate governance system’s capacity to respond to changes in the business environment: the greater the rate of change, the more important is a governance system’s capacity to adapt and the less important its ability to support long-term firm-specific investment.

Jurisdictional competition for corporate charters and firm value: a reexamination of the Delaware effect

In this paper, we analyze the Delaware incorporation effect on firm value to determine whether the positive association found by Daines (J Financ Econ 62(3):525–558, 2001) still holds. Analyzing a sample from 1997 to 2013, we find that the relationship between Delaware incorporation and firm value is no longer positive, as found by Daines, and is in fact negative and significantly different from zero. In addition, we find that this negative relationship holds even after controlling for the effects of Sarbanes–Oxley, the financial crisis, and foreign incorporations. We attribute this change to increasing charter competition, both within and outside of the US. However, in line with current governance trends, we propose that Delaware’s popularity may be rooted in director primacy arguments that support Delaware as a state where directors perceive they have autonomy and discretion through the Chancery Court system.

Controversies about agency theory as theoretical basis for corporate governance

The issue of corporate governance is being taken up by different branches of science. Particular views on the nature and goals of a firm, as well as on corporate law, determine various approaches to the issue. The ongoing debate on corporate governance is being stimulated by notorious scandals and economic crises. The agency theory (prevailing today), which assumes egoism and pursuit of one’s own interests, forms the basis for shareholder primacy model, while team production theory forms the basis for director primacy model. Stewardship theory, which assumes convergence of management’s and stakeholders’ interests, may be competing or complementary towards the agency theory, depending on situation. According to management theory, efficient management requires law regulation of managers’ status. This paper is aimed at presenting controversies about traditional agency theory as theoretical basis for corporate governance, as well as at discussing other perspectives on the issue, which are extensions of the traditional theory or are based on substantially different premises. The analysis shows that going beyond agency theory allows for better understanding of the whole range of models of corporate governance as well as of the changes that are being proposed in the area. The method utilized in this paper is descriptive and comparative in character.

Shareholder primacy, controlling shareholders and Malaysia’s Companies Act 2016

ABSTRACTThe predominant corporate governance model within the Commonwealth mimics that of the UK where powers of management are reserved for the board. This director primacy model, however, is being challenged by proposals to expand shareholders’ decision-making rights including giving shareholders the power to initiate their own proposals and to instruct the board. Amidst this debate, Malaysia has passed its new Companies Act 2016 which contains, amongst others, s 195 which empowers shareholders to make binding recommendations to the board relating to the management of the company. Empowering shareholders by giving them such powers have been the subject of intense criticisms. This article examines s 195 and the shareholders participation eco-system to provide an idea of the law in practice as well as to address the concerns relating to giving shareholders such expansive power. This article advances the view that the decision-making framework under the Companies Act 2016 and the actual functioning of the power to instruct show that these criticisms may be unfounded and the potential setbacks of shareholder empowerment can be minimised through judicious use of legal rules.

The Hostile Poison Pill

Whether one ascribes to the agency theory of shareholder primacy or the contractarian theory of director primacy, boards of directors have great discretion in determining whether, when, and how to sell the corporation. Defensive tactics, like poison pills, can be tools in wielding that discretion in the service of creating shareholder value. However, a poison pill either to oppress a minority shareholder, as in eBay v. Newmark, or to minimize the impact of activist shareholders, as in Versata Enterprises, Inc. v. Selectica, Inc., seems to exceed the “maximum dosage” of the pill. The NOL poison pill, while facially plausible as a tool to protect tax assets from impairment caused by a Section 382 “ownership change,” may be a stepping stone to a low-trigger anti-shareholder pill. Instead of warding off uninvited potential acquirers, the pill could ward off shareholder voice. Though the original poison pills were blessed by the Delaware courts to ward off hostile bidders, now boards can use a hostile poison pill to ward off noisy shareholders. With the threat of the 1980s-era hostile bidder behind us, a new threat to board authority has emerged: the activist shareholder. These types of investors, often activist hedge funds, agitate not for control of a corporation, but for access to the board to argue for changes in strategy. Defensive tools used against hostile bidders at first seem inapplicable to these types of nuisances; staggered boards and poison pills with typical 15-20% triggers seem irrelevant. However, a pair of cases decided in Delaware may give managers an idea of how to cope with these aggressive blockholders. One case, Air Products and Chemicals, Inc. v. Airgas, Inc., allowed a company’s board to keep a poison pill in place for over a year even though the bidder did not seem to pose much of a cognizable threat to the corporation. By itself, Airgas does not seem to give much relief to a board dealing with a noisy 5% or 10% shareholder. However, the Delaware Supreme Court the year earlier had blessed a poison pill that would be triggered if a shareholder increased its ownership to 4.99% of the corporation, the lowest ownership threshold to be brought before the court. In Versata Enterprises, Inc. v. Selectica, Inc., the Delaware court upheld the poison pill even though the board did not focus its argument on the threat of a takeover. In this case, the “danger to corporate policy and effectiveness” existed because of the activist shareholder’s creeping purchases would constitute an “ownership change” under existing federal tax law and would lead to the loss of certain tax assets, net operating loss carryovers (NOLs). Because the NOLs were a very large, if unusable, asset to Selectica that would be severely limited under Section 382 of the Internal Revenue Code if the ownership change occurred, the court held that the low-trigger rights plan was reasonable and proportionate against a legitimate threat. Together, these cases seem to suggest a new weapon to be used against activist shareholders: a poison pill with a very low trigger.Unfortunately, the Delaware courts took at face value Selectica’s argument that the creeping acquisition could involuntarily cause the target company to lose a large tax asset. The Unocal test is supposed to require the board to articulate its rationale for implementing a defensive tactic, foreclosing the opportunity for pretextual arguments. However, this analytical technique may not work in the NOL context where the presence of NOLs may give a board of directors cover for keeping blockholders away. This Article attempts to shed some light on the operation of Section 382 to disclose some of the faulty assumptions surrounding both the necessity and efficacy of the NOL poison pill. In addition, this Article uses a dataset of 155 companies that adopted NOL poison pills between 1998 and 2014 to examine what types of firms are using this defensive tactic. A board might argue in good faith or not that an NOL poison pill is necessary to defend itself against a strange and diverse cast of characters: the Hostile Acquirer, the Accidental Bungler and the Bad Faith Saboteur. However, an NOL poison pill necessarily has little or no deterrent effect and no physical effect against any of these actors. In fact, the only shareholder that the NOL poison pill effectively deters is the activist shareholder, suggesting that the use of the poison pill in these cases may be “hostile.”

A Team Production Theory of Canadian Corporate Law

The article applies the Team Production Theorydeveloped by American corporate law scholars, Margaret Blair and Lynn Stout, to argue that Canadian corporate law's understanding of public corporations that are not controlled by a single shareholder or group of shareholders reflects a director primacy norm rather than a shareholder primacy norm. Canadian corporate law provides that directors of such public corporations with widely-held share ownership and voting rights are free from direct control by any corporate stakeholders. A potential departing point for Canadian corporate law. the oppression remedy, continues to develop to deal with extra-legal advantages rooted primarily in unequal power relations among corporate stakeholders. However, in its current and predicted future applications, the oppression remedy does not provide any given stakeholder group with an ability to dominate the boards of public corporations and obviate the director primacy norm. The article suggests that because the director primacy norm accurately describes Canadian corporate law, further consideration needs to be given to corporate law's relative relevance in dictating how Canadian corporations currently operate.

Anti-Primacy: Sharing Power in American Corporations

Prominent theories of corporate governance frequently adopt primacy as an organizing theme. Shareholder primacy is the oldest and most used of this genre. Director primacy has grown dramatically, presenting in at least two distinct versions. A variety of alternatives have followed — primacy for CEOs, employees, creditors. All of these theories can’t be right. This article asserts that none of them are. The alternative developed here is one of shared power among the three actors named in corporations statutes with judges tasked to keep all players in the game. The debunking part of the article demonstrates how the suggested parties lack legal or economic characteristics necessary for primacy. The prescriptive part of the article suggests that we can better understand the multiple uses of primacy if we recognize that law is not prescribing first principles for governance of firms, but rather providing a structure that works given the economic and business environment in place for modern corporations where there is separation of function and efficiencies of managers as a starting point. Thus the familiar statutory language putting all power in the board must be read against the reality of the discontinuous nature of the board (and shareholder) involvement in governance. Corporate governance documents of the largest American corporations, as discussed in the article, are consistent with this reality, assigning management to officers and using verbs like oversee, review and counsel as the director functions. The last part examines dispute resolution and the role of judges in such a world, with a particular focus on the shareholder/director boundary. At this boundary there are two distinct judicial roles, the traditional role focusing on use of fiduciary duty to check conflict and other director incapacity and the less-recognized role of protecting shareholder self-help. In this more modern context shareholders, because of market and economic developments, are able to effectively participate in governance in a way that wasn’t practical three decades ago, when the key Delaware legal doctrines were taking root. What is particularly interesting here is how courts, commentators and institutional investors act in a way that is consistent with a shared approach to power, as opposed to the primacy of any of the theories initially suggested.

Who Should Say on Pay and for the Sake of Whom in a Listed Company?

Listed companies’ remuneration policies have been associated with bad corporate governance. It has been argued that managerial power is too strong, which leads to imbalance between pay and performance. As a solution, shareholders, possessing a special position in the mainstream theory, are increasingly empowered to say on pay. However, in order for the company to contribute sustainable business, remuneration should be built on companies’ own long-term survival, not shareholder value, and supported with director primacy.

U.S. State Chartering Competition: Evidence of Director Primacy in Corporate Governance?

Utilizing concepts from agency theory as well as director and shareholder primacy models, this study examines U.S. state chartering competition and the debate about whether Delaware incorporation provides additional firm value for shareholders. In a longitudinal study of firms with data from 1996-2013, we found that on the surface, in line with shareholder primacy goals, Delaware incorporated firms appear to have less debt, and a higher Tobin's Q than similar firms in other states, suggesting that they are managed well for shareholder returns and supporting race to the top arguments. However, when taking into account fixed effects, and expanding the sample to include those companies that are publicly traded in the U.S. but incorporated overseas, the effect of Delaware incorporation is negligible to shareholder wealth. Foreign incorporated firms provide significantly more value for shareholders over longer periods of time than do Delaware corporations. This suggests that the popularity of Delaware incorpor...

Corporate Governance Without Shareholders: A Cautionary Lesson From Non-Profit Organizations

For over 80 years, debate over corporate governance has centered on the balance of authority between the board and shareholders. One side in this debate advocates “shareholder primacy”, so that directors would actually be chosen by and accountable to the stockholders. The other side touts “director primacy” and keeping shareholders weak. This side claims that directors who are free of shareholder control would strive to maximize long-term firm value, and have the wisdom and independence to pursue this goal intelligently and conscientiously. The boards of non-profit organizations (“NPOs”) are self-perpetuating: They are not answerable to shareholders because they have no shareholders. If director primacists are right, NPO boards should function as director primacists wish corporate boards would. The reality is quite the contrary. Commentators agree that NPO boards are generally worse than corporate boards. This brief article describes the functioning of NPO boards, discusses why they are so dysfunctional, and what lessons their example holds for corporate governance.

Corporate Social Responsibility & Concession Theory

This Essay examines three related propositions: (1) Voluntary corporate social responsibility (CSR) fails to effectively advance the agenda of a meaningful segment of CSR proponents; (2) None of the three dominant corporate governance theories – director primacy, shareholder primacy, or team production theory – support mandatory CSR as a normative matter; and, (3) Corporate personality theory, specifically concession theory, can be a meaningful source of leverage in advancing mandatory CSR in the face of opposition from the three primary corporate governance theories. In examining these propositions, this Essay makes the additional claims that Citizens United: (A) supports the proposition that corporate personality theory matters; (B) undermines one of the key supports of the shareholder wealth maximization norm; and (C) highlights the political nature of this debate. Finally, I note that the Supreme Court’s recent Hobby Lobby decision does not undermine my CSR claims, contrary to the suggestions of some commentators.

A Director Primacy View on CEO Dismissals

What is the role of shareholders in CEO dismissal decisions? The shareholder primacy view calls for increasing shareholder rights to enhance shareholder control over corporate decisions such as CEO dismissals. The director primacy view on the other hand suggests that directors are a powerful authority not just independent from management, but also from shareholder influence. We suggest that the continued calls for shareholder empowerment decrease directors’ authority to discipline an underperforming CEO. We also suggest that outside director ownership can induce accountability in strong corporate boards and maintain the value of authority. We test our theory in a longitudinal study of large U.S. manufacturing firms over 1,138 firm-years and find support for the predictions that directors initiate CEO changes if shareholder influence over board decisions is limited and outside director ownership is high.

Questioning Authority: Why Boards Do Not Control Managers and How a Better Board Process Can Help

Few Chief Executive Officers (CEOs) believe their boards of directors understand the strategic factors that determine their corporation’s success. In fact, some long-term directors “confess that they don't really understand how their companies make money.” Yet broadly accepted theories of corporate governance, such as Stephen Bainbridge’s Director Primacy, are founded on the faulty premise that boards of directors have the actual authority to stop managers from behaving badly. These theories, as well as corporate law, wrongly assume that boards have practical authority over managers. This Article directly challenges that assumption and argues that managers, not boards, control corporate decision-making processes. The problem is that legal scholars and policymakers have ignored the connection between decision-making processes and practical authority. This Article is the first to identify and examine this relationship, which is essential to helping boards live up to their legislative mandates.This Article argues that an effective decision-making process is essential to securing a corporate board’s actual authority. Unless boards engage in such a process, regulators will continue to expect boards to perform tasks that exceed their capabilities. Organizational behavior theory, which can be found in business literature, but is frequently ignored in law, provides the attributes of an effective decision-making process. Analyzing the components of an effective process, and identifying which components are truly controlled by boards as opposed to managers, supplies a roadmap for what boards need in order to have both de facto and de jure authority in their corporations. This Article provides that original analysis.

Shareholder Primacy in Nigeria: A Myth or a Reality?

This research is set against the backdrop of the recent occurrences bordering on corporate governance in Nigeria, such as lack of accountability to shareholders, corrupt CEO’s, inefficient boards of directors and fraud in many public companies in Nigeria. It explores shareholder primacy in Nigeria not just as a normative theory, but also as a descriptive one. Although companies claim to be run in the best interest of shareholders, there is a need to assess whether what obtains is a clear case of director primacy or shareholder primacy. Thus, the research also focuses on salient issues such as shareholder activism, shareholder rights and control and the efficiency justification. Inferences are drawn from its case studies - Cadbury Nigeria Plc and the Banking sector to determine this.This essay is divided into six chapters. The first chapter briefly reviews the various theories of corporate governance and gives reasons why shareholder primacy has been described as the ‘ideal model’. The second chapter considers the corporate governance framework in Nigeria and sheds light on the regulatory institutions responsible for corporate governance in Nigeria. The third chapter examines the roles directors play in shareholder primacy. It reveals the legal duties of directors, the board structure in Nigeria and in the UK and the role of independent non executive directors. The fourth chapter makes a vital comparison between director primacy and shareholder primacy theories and examines some of the prevailing issues bordering around this controversy, which would be used for the analysis in chapter five. Chapter five analyses the prevailing issues in chapter four in relation to the Nigerian context. It also highlights on the lessons that can be learned from the UK with regard to these prevailing issues. It arrives at its conclusion in chapter six.

Defending Against Shareholder Proxy Access: Delaware's Future Reviewing Company Defenses in the Era of Dodd-Frank

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has ensured that a shareholder’s ability to place nominees to the board onto the corporate ballot, an objective long advocated by the institutional investor community, will soon be implemented by the Securities and Exchange Commission. Advocates of proxy access urge that it will help hold Boards of Directors accountable to their owners. Critics argue that it will give conflicted shareholders, like unions and state pensions, power they will use to facilitate their political objectives at the expense of ordinary shareholders. The shareholder primacy and director primacy theories of corporate law have framed an extensive debate in the literature. Regardless of which theory holds force, we can expect Boards to implement defensive strategies in the wake of proxy access to limit shareholder power, in the same way that Boards implemented defensive tactics in response to the hostile takeovers of the mid-1980s. Delaware’s review of Board proxy access defenses will shape its role in the foreseeable future in much the same way review of Board takeover defenses shaped its role over the last 20 years. This article in part considers what strategies may be useful for boards defending against proxy access and designs novel methods boards might consider. It also examines how Delaware judges are likely to review those defenses under a vast body of jurisprudence protecting the shareholder franchise, also known as the Blasius line of cases. Though the Blasius cases protect the shareholder franchise, they do not necessarily prohibit board policies, bylaws, or charter amendments with an incidental effect on the shareholder’s federal nomination right. Finally, this article considers whether the defenses considered are likely to be struck down as pre-empted by federal law or prohibited by the federal securities laws or stock exchange listing requirements. The article offers a roadmap for how boards are likely to respond to proxy access and how Delaware’s role as arbiter of the shareholder/manager relationship is likely to evolve in the new environment.

Why the North Dakota Publicly Traded Corporations Act Will Fail

In this short essay for a forthcoming symposium, I comment on the North Dakota Publicly Traded Corporations Act. North Dakota hopes that the Act will empower it to compete with Delaware in the market for corporate charters. In my view, North Dakota is doomed to failure. If state chartering competition is a race to the bottom, managers will prefer Delaware to North Dakota because the former facilitates the extraction of private rents. If state competition is a race to the top, investors will prefer the director primacy approach taken by Delaware to the shareholder primacy one adopted by North Dakota. Either way, North Dakota loses.