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Mariana Pargendler - One of the best experts on this subject based on the ideXlab platform.
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the evolution of Shareholder Voting Rights separation of ownership and consumption
Yale Law Journal, 2013Co-Authors: Henry Hansmann, Mariana PargendlerAbstract:The nineteenth century saw the standardization and rapid spread of the modern business corporation around the world. Yet those early corporations differed from their contemporary counterparts in important ways. Most obviously, they commonly deviated from the one-share-one-vote rule that is customary today, instead adopting restricted Voting schemes that favored small over large Shareholders. In recent years, both legal scholars and economists have sought to explain these schemes as a rough form of investor protection, shielding small Shareholders from exploitation by controlling Shareholders in an era when investor protection law was weak.We argue, in contrast, that restricted Voting rules generally served not to protect Shareholders as investors, but to protect them as consumers. The firms adopting such rules were frequently local monopolies that provided vital infrastructural services such as transportation, banking, and insurance. The local merchants, farmers, and landholders who used these services were the firms’ principal Shareholders. They commonly purchased shares not in the expectation of profit, but to finance collective goods. Restricted Shareholder Voting assured that control of the firms’ services would not fall into the hands of monopolists or competitors. In effect, the corporations had much the character of consumer cooperatives. This perspective also sheds light on the unusual importance given to the doctrine of ultra vires in the nineteenth century.While current legal and economic scholarship has focused incessantly on the separation between ownership and control, the prior separation between ownership and consumption, accomplished by the late nineteenth century, was another fundamental but generally overlooked turning point in the history of the business corporation. Understanding this transformation throws light not just on historical practices, but also on contemporary debates over deviations from the rule of one-share-one-vote.
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A new view of Shareholder Voting in the nineteenth century: evidence from Brazil, England and France
Business History, 2013Co-Authors: Mariana Pargendler, Henry HansmannAbstract:Business corporations in the nineteenth century often imposed limits on the Voting Rights of large Shareholders. Economic historians have generally interpreted these Voting restrictions as a contractual mechanism designed to protect small Shareholders in a legal environment that afforded insufficient investor protection. This dominant account, however, fails to explain the variation in the incidence of Voting restrictions across different industries and firm ownership structures, as well as their eventual disappearance from corporate charters over time. In this Article, we advance an alternative interpretation for these early Voting schemes as efforts at consumer protection employed primarily by firms that were local service monopolies and collectively owned by their principal customers, none of whom wished the firm to come under the exclusive control of their competitors or of profit-maximising investors. We explore and test this proposition by analysing data on Shareholder Voting Rights in the nineteenth century in Brazil, England, and France.
Henry Hansmann - One of the best experts on this subject based on the ideXlab platform.
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the evolution of Shareholder Voting Rights separation of ownership and consumption
Yale Law Journal, 2013Co-Authors: Henry Hansmann, Mariana PargendlerAbstract:The nineteenth century saw the standardization and rapid spread of the modern business corporation around the world. Yet those early corporations differed from their contemporary counterparts in important ways. Most obviously, they commonly deviated from the one-share-one-vote rule that is customary today, instead adopting restricted Voting schemes that favored small over large Shareholders. In recent years, both legal scholars and economists have sought to explain these schemes as a rough form of investor protection, shielding small Shareholders from exploitation by controlling Shareholders in an era when investor protection law was weak.We argue, in contrast, that restricted Voting rules generally served not to protect Shareholders as investors, but to protect them as consumers. The firms adopting such rules were frequently local monopolies that provided vital infrastructural services such as transportation, banking, and insurance. The local merchants, farmers, and landholders who used these services were the firms’ principal Shareholders. They commonly purchased shares not in the expectation of profit, but to finance collective goods. Restricted Shareholder Voting assured that control of the firms’ services would not fall into the hands of monopolists or competitors. In effect, the corporations had much the character of consumer cooperatives. This perspective also sheds light on the unusual importance given to the doctrine of ultra vires in the nineteenth century.While current legal and economic scholarship has focused incessantly on the separation between ownership and control, the prior separation between ownership and consumption, accomplished by the late nineteenth century, was another fundamental but generally overlooked turning point in the history of the business corporation. Understanding this transformation throws light not just on historical practices, but also on contemporary debates over deviations from the rule of one-share-one-vote.
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A new view of Shareholder Voting in the nineteenth century: evidence from Brazil, England and France
Business History, 2013Co-Authors: Mariana Pargendler, Henry HansmannAbstract:Business corporations in the nineteenth century often imposed limits on the Voting Rights of large Shareholders. Economic historians have generally interpreted these Voting restrictions as a contractual mechanism designed to protect small Shareholders in a legal environment that afforded insufficient investor protection. This dominant account, however, fails to explain the variation in the incidence of Voting restrictions across different industries and firm ownership structures, as well as their eventual disappearance from corporate charters over time. In this Article, we advance an alternative interpretation for these early Voting schemes as efforts at consumer protection employed primarily by firms that were local service monopolies and collectively owned by their principal customers, none of whom wished the firm to come under the exclusive control of their competitors or of profit-maximising investors. We explore and test this proposition by analysing data on Shareholder Voting Rights in the nineteenth century in Brazil, England, and France.
James B. Shein - One of the best experts on this subject based on the ideXlab platform.
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Corporate Governance at Martha Stewart Living Omnimedia: Not “A Good Thing” - Corporate Governance at Martha Stewart Living Omnimedia: Not “A Good Thing”
Kellogg School of Management Cases, 2017Co-Authors: James B. SheinAbstract:The case opens with Martha Stewart's 2005 release from prison following her conviction for obstructing an insider-trading investigation of her 2001 sale of personal stock. The scandal dealt a crippling blow to the powerful Martha Stewart brand and drove results at her namesake company, Martha Stewart Living Omnimedia (MSO), deep into the red. But as owner of more than 90 percent of MSO's Voting shares, Stewart continued to control the company throughout the scandal. The company faced significant external challenges, including changing consumer preferences and mounting competition in all of its markets. Ad rates were under pressure as advertisers began fragmenting spending across multiple platforms, including the Internet and social media, where MSO was weak. New competitors were luring readers from MSO's flagship publication, Martha Stewart Living. And in its second biggest business, merchandising, retailing juggernauts such as Walmart and Target were crushing MSO's most important sales channel, Kmart. Internal challenges loomed even larger, with numerous failures of governance while the company attempted a turnaround. This case can be used to teach either corporate governance or turnarounds. Students will learn: How control of Shareholder Voting Rights by a founding executive can undermine corporate governance The importance of independent directors and board committees How company bylaws affect corporate governance How to recognize and respond to early signs of stagnation How to avoid management actions that can make a crisis worse How weaknesses in executive leadership can push a company into crisis and foster a culture that actively prevents strategic revitalization
Robert J Brown - One of the best experts on this subject based on the ideXlab platform.
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the proxy rules and restrictions on Shareholder Voting Rights
The Seton Hall Law Review, 2016Co-Authors: Robert J BrownAbstract:Shareholders in public companies vote not by attending the meeting but by exercising their Rights under the federal proxy rules. Recognizing this, the Securities and Exchange Commission has at times described the proxy rules as neutral in effect, designed only to provide Shareholders with the same Rights accorded under state law.3 In fact, this has often not been the case. Over their eighty-year development, the rules have often reduced rather than complemented the Rights otherwise available to Shareholders at these meetings.This can be seen with particular clarity in connection with the erosion of Shareholder Voting Rights. Under the proxy rules, Rule 14a-8 permits Shareholders to submit a proposal for inclusion in the proxy statement.4 The rule contains procedural conditions and substantive restrictions that allow for the exclusion of some proposals. Shareholders seeking to avoid these limitations may either distribute their own proxy statement, an often prohibitively expensive step, or, under state law, wait for the meeting and make the proposal there.To the extent that Shareholders opt for the latter approach, the proxy rules all but guarantee that the effort will fail. Upon execution of a proxy card, Rule 14a-4 allows for the involuntary transfer to management of discretionary authority to vote against any proposal that arises from the floor of the meeting and does not otherwise appear in a proxy statement. The transfer even applies where adequate notice of an impending proposal is provided and management has sufficient time and opportunity to obtain Voting instructions from Shareholders. Shareholders can only avoid the transfer of discretionary authority by circulating their own proxy statement or refusing to return the proxy card. Such a refusal forces the Shareholder either to forego the right to vote or to attend the meeting and cast a ballot in person. Neither represents a satisfactory solution.The policy reflected in Rule 14a-4 has been justified as beneficial to Shareholders. The approach is convenient.7 The proxy process is rendered more efficiently.8 Imposing the restrictions avoids Shareholder “confusion.” In fact, the discretionary authority provided under Rule 14a-4 is better understood as the byproduct of an uneven evolution in the development of the proxy rules. For much of the history of these provisions, Shareholders were less organized and showed only modest interest in their impact on corporate governance. The rules, therefore, mostly reflected the interests of issuers. Rather than duplicating Rights available at the meeting, they were used to restrict or reduce those Rights.The approach to discretionary Voting contained in Rule 14a-4 raises serious governance concerns. The system effectively forces Shareholders to submit proposals under Rule 14a-8 for inclusion in the proxy statement. Only in these circumstances must management provide Shareholders with the explicit right to vote for or against the matter and forgo the use of discretionary authority.11 At the same time, however, reliance on Rule 14a-8 can have significant drawbacks. A complicated provision often interpreted in an arbitrary fashion, Shareholders must incur the expense of crafting a proposal that avoids application of the many substantive and procedural hurdles contained in the rule. In addition, they often must undertake the costs of defense when management seeks omission of the proposal from the proxy statement.More importantly, however, the rule is simply not available for some types of proposals. The Commission has categorically excluded entire topics from Rule 14a-8. Proposals are, for example, routinely excluded to the extent addressing the rotation, ratification or qualification of the outside auditor, despite the obvious importance of the topic to Shareholders.13 A proposal in this area, therefore, can only be made through a separate proxy solicitation or from the floor of the meeting; reliance on Rule 14a-8 is entirely foreclosed. Yet when the proposal is made from the floor, management routinely obtains the discretionary Voting authority to ensure defeat.This Article traces the evolution of discretionary Voting power under the proxy rules. The history is one of continuous expansion of the company’s right to such authority. The Article also discuss the imperfect, indeed ineffective, mechanisms that can be used to prevent the transfer of discretionary Voting authority from Shareholders to management. Finally, the Article examines possible changes in the regulatory regime that can address these concerns.
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protecting Shareholders from themselves the sec and restrictions on Shareholder Voting Rights
2016Co-Authors: Robert J BrownAbstract:Corporate governance and the relationship between managers and owners has undergone rapid evolution in recent years. As part of this process, Shareholders have obtained greater ability to influence the behavior of the board of directors. In seeking to exert influence, Shareholders often do so through the proxy process. The proxy process provides Shareholders with a cost effective method of Voting without having to physically attend the Shareholder meeting. The proxy rules, which are administered by the Securities and Exchange Commission (“SEC”), were drafted in an earlier era when Shareholders were less involved in the governance process. As a result, the rules are one-sided and do not adequately reflect the interests of Shareholders. The proxy rules contain a number of restrictions and limitations that reduce the Voting Rights of Shareholders. This article examines an example of this phenomena. Under the rules, the execution of a proxy card results in an involuntary transfer of Voting authority from Shareholders to management in connection with any proposal that comes up at the meeting but does not otherwise appear in the proxy statement. The effect of this transfer is to ensure that any proposal made at the meeting will be defeated. At the same time, the SEC has interpreted the proxy rules to allow companies to omit certain types of proposals from the proxy statement. Proposals can be omitted that address the rotation, ratification or qualification of the outside auditor, issues of significant importance to Shareholders. To raise these matters, therefore, Shareholders must do so at the meeting. At the same time, however, the proxy rules, through the involuntary transfer of Voting Rights, ensure that the proposals will be defeated. The article makes the case for a reevaluation of the proxy rules to better reflect the current state of the corporate governance debate. At a minimum, this means repealing restrictions in the rules that limit or reduce the Voting Rights of Shareholders. The article suggests a number of changes to the proxy rules that are needed to accomplish this goal.
Colleen A Dunlavy - One of the best experts on this subject based on the ideXlab platform.
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social conceptions of the corporation insights from the history of Shareholder Voting Rights
Washington and Lee Law Review, 2007Co-Authors: Colleen A DunlavyAbstract:The diversity of Voting rules in today's corporations indicates that power is distributed among Shareholders in a great variety of ways, but current theories of the corporation have little to say about this diversity. For insight into the significance of different ways of distributing power among Shareholders and the social conceptions of the corporation that they imply, this Article develops a historically-grounded framework for evaluating the political import of Shareholder Voting Rights. Sketching out the history of Shareholder Voting Rights since the early nineteenth century, it shows how the distinctive meaning of the twentieth-century term "Shareholder democracy" grew out the vertical power relations that had come to characterize American corporations by mid-century. To recalibrate our understanding of horizonal power relations, this Article explores a handful of controversies over Voting rules in the nineteenth century. Finally, it applies this more nuanced understanding to present-day Voting rules and suggests that competing social conceptions of the corporation are as alive today as they were in the nineteenth century.
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corporate governance in nineteenth century europe and the usa the case of Shareholder Voting Rights
1997Co-Authors: Colleen A DunlavyAbstract:Why did mergers -- the consolidation of firms into giant enterprises -- prove so much more attractive in the U.S. than in Britain and France or even Germany at the turn of the century? Conventional understanding points to the economic utility of the corporation and to the distinctive incentives to choose consolidation or cartellization that were created by the way that courts and legislatures treated inter-firm cooperation in each country. But this story leaves important questions unasked about the underlying capacity of American investors to engage in consolidation in the first place. Where did American firms, facing courts and legislatures hostile to cartels, get the organizational wherewithal to pursue mergers instead? What was it that enabled them to merge with such ease? Posing such questions about the American experience raises fresh ones in the European context as well. Cooperation in cartels or similar arrangements was certainly a safer strategy in Britain, France, and Germany by the turn of the century, but, if European courts or legislatures had proven as hostile to cooperation as their American counterparts, would European firms have been able to merge with comparable ease? And, conversely, did they turn more often to cartels, because they lacked the underlaying capacity to merge as readily? This research project, preliminary results of which are presented in this paper, tackles these questions from the vantage point of power namely, the power of large stockholders to determine the choice of corporate strategy at the turn of the century. In doing so, it: a) regards incorporation not only as a response to economic demand but also as the result of distinctive national political conditions and processes; b) conceives of the firm not merely as an economic institution but also as legally-constructed polity that is peopled by "citizens" (its investors); c) looks inside the "black box" of stockholders' and directors' meetings to understand the dynamics of power relations among investors; and d) explores the impact of distinctive configurations of power on the firm's choice of strategies of growth. In particular, the study traces changes in two measures of "democratic practice" in the firm: Shareholder Voting Rights (especially the use of graduated Voting scales to limit the power of large investors) and the constitutional structure of the firm (i.e., the distribution of power between the mass of stockholders and representative institutions such as the board of directors). The core question is how changes in corporate governance in particular, a shift from democratic to plutocratic forms of governance shaped the choice of corporate strategies during the first great wave of concentration at the turn of the century. Preliminary results of research on Shareholder Voting Rights suggest that remarkably democratic styles of corporate governance prevailed in the U.S. and Europe (i.e., Britain, France, and Germany) ca. 1830. Indeed, Anglo-America common law marked out a "democratic" extreme: if a company's charter (or articles) specified nothing different, it regarded Shareholders to have one vote per person. In this period, three basic variations from this common law standard were also widely known. Defining the "plutocratic" end of the spectrum was the modern practice of giving each share one vote. This was considered downright dangerous in the late eighteenth century, and it was still relatively uncommon in the 1830s, even in the USA. The other two forms of Voting Rights occupied the middle of the spectrum. One took the form of the graduated Voting scale, which apportioned votes according to shares but systematically reduced the power of large Shareholders. The other, which could be combined with a graduated scale, was an overall cap on Voting Rights; this limited the number of votes that a Shareholder could cast to a specific number or to a specified proportion of the total number cast (one-tenth was a common limit). Over the middle decades of the nineteenth century, it seems, these more democratic forms of Shareholder Voting Rights disappeared much faster in the U.S. than in Europe. By the 1880s a plutocratic style of governance, in which power was directly proportional to investment, had come to dominate in the U.S., while constraints on the power of large investors especially graduated Voting scales and absolute or relative caps on total votes remained more commonplace in Europe. Even in Britain the common-law practice of Voting initially by a show of hands reportedly persisted through the turn of the century; only if five or more Shareholders requested a "poll" did Shareholders actually vote according to the Voting Rights specified in their articles of association (and the default until 1906 was a graduated Voting scale). This divergence, together with a greater incidence of incorporation in the U.S., set the stage at the turn of the century for the "great merger movement" in the U.S. and for cartel-building in Europe. Whether companies proved much easier to take over when more plutocratic forms of governance prevailed (because control could be gained more easily) remains to be seen. But if this were so, then more democratic forms would have posed serious obstacles to mergers in Europe and therefore would have created greater incentives to cooperate in cartels.