Corporate Governance

Fiduciary Duties for Activist Shareholders

By Harvard Law School Program on Corporate Governance

Together with Iman Anabtawi, I have just issued a new article on SSRN entitled Fiduciary Duties for Activist Shareholders. The article is to be published in the Stanford Law Review, and a current draft is available here.

Fiduciary Duties for Activist Shareholders argues that corporate law seems to impose few or no fiduciary duties on minority shareholders in public corporations because historically, minority shareholders in public firms enjoyed little or no power or influence within the firm. The most important trend in corporate governance today, however, is the move toward ?shareholder democracy.? Activist investors, especially hedge funds, are using their new power to pressure managers and directors into pursuing corporate transactions ranging from share repurchases, to special dividends, to the sale of assets or even the entire firm. In many cases these transactions benefit the activist while failing to benefit, or even harming, the firm and other shareholders.

Greater shareholder power should be coupled with greater shareholder responsibility. Fiduciary Duties for Activist Shareholders argues that the rules of fiduciary duty traditionally applied to officers and directors and, more rarely, to controlling shareholders, should be applied to activist minority investors as well. There is no reason to believe that newly-empowered activist shareholders are immune to the forces of greed and self-interest widely understood to tempt corporate officers and directors. Corporate law can and should adapt to this reality.

Full post as published by The Harvard Law School Corporate Governance Blog on March 03, 2008 (boomark / email).