“Shareholder Voting in an Age of Intermediary Capitalism,” a Southern California Law Review article co-authored by Randall Thomas, John S. Beasley II Chair in Law and Business, with Paul Edelman, a professor of mathematics and professor of law at Vanderbilt University, and Robert Thompson, the Peter P. Weidenbruch Jr. Professor of Business Law at Georgetown Law Center, has been selected as among the best scholarly articles address corporate and securities law during 2015.
The article was selected through a poll in which professors of corporate and securities law were asked to select the 10 best corporate and securities articles from the previous calendar year. Because of ties, 12 articles were selected for the 2015 Corporate Practice Commentator from a list of more than 540 articles published and indexed in legal journals during 2015.
In “Shareholder Voting in an Age of Intermediary Capitalism” (87 Southern California Law Review 1359, 2014), the authors assert that “traditional theory about shareholder voting, rooted in concepts of residual ownership and a principal/agent relationship, does not reflect recent fundamental changes as to who shareholders are and their incentives to vote (or not vote).”
They propose a new theory of corporate voting that offers three complementary reasons for shareholder voting, and then apply that theory to the current stock market, where most shares are held by institutional investment intermediaries—and mostly within retirement plans. “These ‘intermediaries’ business plans give them little reason to vote those shares and even create conflicts of interest that may distort their votes,” Thomas said.
The authors then discuss several recent developments that have increased the prominence of shareholder voting:
- Government regulations now require many institutions to vote their stock in the best interests of their beneficiaries.
- Subsequent market innovations led to the birth of third-party voting advisers, including Institutional Shareholder Services (ISS), which help address the costs of voting and the collective action problems inherent in coordinated institutional shareholder action.
- Building on these developments, hedge funds have aggressively intervened in corporate governance at firms seen as undervalued, regularly using the ballot box to pressure targeted firms to create shareholder value—which gives institutional shareholders a good reason to care about voting.
- An increasing number of proposals, such as Say on Pay proposals, Rule 14a-8 corporate governance proposals, and majority vote requirements for the election of directors, now require shareholder votes.
Thomas, Edelman and Thompson also apply their theory to examine when shareholder voting is justified. “We examine hedge fund activism as an example of high value voting situation and Say on Pay votes as an illustration of lower value cases where there are still good reasons to have shareholder votes,” Thomas said.
“Shareholder Voting” is the eleventh article co-authored by Thomas and the second co-authored by Edelman to be selected as one of the Top 10 Corporate and Securities Articles by the Corporate Practice Commentator.
Articles co-authored by Thomas or Edelman previously voted among the Top 10 Corporate and Securities articles of the year include:
2012: “A Theory of Representative Shareholder Suits and Its Application to Multi-jurisdictional Litigation,” 106 Northwestern Law Review 1753 (2012). (Randall Thomas and Robert Thompson)
2011: “Executive Compensation in the Courts: Board Capture, Optimal Contracting and Officer Fiduciary Duties,” 95 University of Minnesota Law Review 1877 (2010) (Randall Thomas and Harwell Wells)
2009: “Corporate Voting,” 62 Vanderbilt Law Review 62 129 (2009) (Paul Edelman and Robert Thompson)
2008: “There Are Plaintiffs and…There Are Plaintiffs: An Empirical Analysis of Securities Class Action Settlements, 61 Vanderbilt Law Review 355 (2008) (Randall Thomas, James Cox and Lynn Bai)
2007: “Does the Plaintiff Matter? An Empirical Analysis of Lead Plaintiffs in Securities Class Actions,” 106 Columbia Law Review 1587 (2006) (Randall Thomas and James Cox)
2006: “Letting Billions Slip Through Your Fingers: Empirical Evidence and Legal Implications of the Failure of Financial Institutions to Participate in Securities Fraud Class Action Settlements,” 58 Stanford Law Review 411 (2005) (Randall Thomas and James Cox)
2005: “The Public and Private Faces of Derivative Lawsuits,” 58 Vanderbilt Law Review 1747 (2004) (Randall Thomas and Robert Thompson)
2004: “The New Look of Shareholder Litigation: Acquisition-Oriented Class Actions,” 57 Vanderbilt Law Review 133 (2004) (Randall Thomas and Robert Thompson). Reprinted in Mergers and the Market for Corporate Control (Fred McChesney, editor)
2000: “The Determinants of Shareholder Voting on Stock Option Plans,” 35 Wake Forest Law Review 31 (2000) (Symposium Issue) (Randall Thomas and Kenneth J. Martin)
1998: “Should Labor Be Allowed to Submit Shareholder Proposals?” 73 Washington Law Review 41 (1998). Reprinted in 32 Securities Law Review 463 (1999). (Randall Thomas and Kenneth J. Martin)
1998: Realigning Corporate Governance: Shareholder Activism By Labor Unions,” 96 Michigan Law Review 1018 (1998) (Randall Thomas and Stewart Schwab)
