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118 Harv. L. Rev. 833 (2004-2005)
The Case for Increasing Shareholder Power

handle is hein.journals/hlr118 and id is 859 raw text is: VOLUME 118 JANUARY 2005 NUMBER 3 HARVARD LAW REVIEW ARTICLES THE CASE FOR INCREASING SHAREHOLDER POWER Lucian Arye Bebchuk TABLE OF CONTENTS I. INTRODUCTION: RECONSIDERING THE ALLOCATION OF POWER BETWEEN MANAGEMENT AND SHAREHOLDERS.............................................................................................................. 836 II. THE EXISTING ALLOCATION OF POWER ........................................................................... 843 A. U.S. Law........................................................................................................................... 844 i. Rules-of-the-Game Decisions..................................................................................... 844 2. Specific B usiness D ecisions........................................................................................ 846 B. The Different Approach of the United Kingdom.......................................................... 847 III. LETTING SHAREHOLDERS SET THE RULES..................................................................... 850 A. The Limits of Shareholder Power To Replace Directors.......................................... 85 i. Som e E m pirical E vidence...................................................................................... 852 2. Why the Power To Replace Directors Is Insufficient............................................... 856 B. Shareholders' Veto Power over Fundamental Changes................................................ 862 s. Cases in Which Management Prefers the Status Quo.............................................. 862 2. Cases in Which Both Management and Shareholders Prefer Change.................... 862 3. Bundling a Change with Something Else................................................................. 864 C. The Benefits of Letting Shareholders Set the Rules..................................................... 865 i. Corporate Charters..................................................................................................... 865 2. Reincorporation Decisions and State Law Rules...................................................... 868 3. One Rule Change To Improve All Governance Arrangements............................... 869 D. Design ..............................................................................................................................870 1. Submission of Proposals............................................................................................. 870 2. Adoption of Proposals ................................................................................................ 872 3. Adoption of the Proposed Regime ............................................................................. 874 IV. OBJECTIONS TO LETTING SHAREHOLDERS SET THE RULES...................................875 A. Rare Adoption of Shareholder-Initiated Changes ........................................................ 876 i. Will Shareholders Have Incentives To Bring Proposals? ........................................ 876 2. Will Shareholders Vote Against Management? ........................................................ 877 3. It's the Indirect Benefits, Stupid................................................................................ 878 B. The Costs of Contests over Nuisance Proposals ........................................................... 879 833

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