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79 Geo. L.J. 445 (1990-1991)
The Logic and (Uncertain) Significance of Institutional Shareholder Activism

handle is hein.journals/glj79 and id is 463 raw text is: The Logic and (Uncertain) Significance of Institutional Shareholder Activism EDWARD B. ROCK* TABLE OF CONTENTS I. INTRODUCTION: THE RISE OF THE INSTITUTIONAL INVESTOR ................................................... 447 II. THE COLLECTIVE ACTION PROBLEM: THE LOGIC OF SHAREHOLDER ACTION ...................................... 453 A. THE STARTING POINT .................................... 453 B. THE DEGREE OF LATENCY: CONCENTRATION IS MORE SIGNIFICANT THAN NUMBER ............................. 457 C. THE SHAPE OF THE NET BENEFIT FUNCTION ............. 460 D. THE BENEFIT FROM FREE RIDING ........................ 461 E. THE BENEFIT FROM EXITING ............................. 462 F. THE BENEFIT FROM CAPTURING A PORTION OF THE COLLECTIVE GOOD ...................................... 463 III. THE AGENCY ANALYSIS ..................................... 464 A. ENTREPRENEURS AND BY-PRODUCTS ..................... 465 B. AGENCY PROBLEM I: THE POTENTIAL CONFLICT BETWEEN LARGE AND SMALL SHAREHOLDERS ........... 466 C. AGENCY PROBLEM II: MONEY MANAGERS V. SHAREHOLDERS ......................................... 468 1. Conflicts of Interest .................................. 469 2. The Collective Action Problem Repeated? ............ 472 a. Economic incentives ............................... 472 b. Legal incentives ................................... 476 IV. INSTITUTIONAL INVESTOR ACTIVISM: PLAYERS AND PROPOSALS .................................................. 478 A. THE NEW PLAYERS: ENTREPRENEURS AND BY-PRODUCTS ........................................... 479 B. SHAREHOLDER PROPOSALS ............................... 481 1. Takeover Related Proposals .......................... 484 * Assistant Professor of Law, University of Pennsylvania Law School. In writing this piece, I benefitted enormously from the insightful comments and criticisms of Bernie Black, Ken Davis, Pat Gudridge, Marcel Kahan, Mike Klausner, Reinier Kraakman, Seth Kreimer, Stephen Morse, Michael Wachter, and Elizabeth Warren, and from faculty workshops at the University of Miami and the University of Pennsylvania law schools. I am also grateful to Jonathan Ashley for very able research assistance. Financial support for this research was provided by the University of Penn- sylvania Law School's Institute for Law and Economics.

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