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The traditional focus of corporate law is on aligning managers' preferences with the interests of shareholders. We show that this view is premised on two assumptions that are no longer true: first, the idea that all shareholders want to maximize the net present value of the firm's earnings per dollar invested and, second, the view that microeconomic shocks do not produce macroeconomic consequences. The rise of institutional investors undermines the first assumption: large asset managers hold the entire market and have been shown to display a preference for maximizing the value of their portfolio as a whole rather than the performance of individual companies. That is, they are portfolio, rather than firm, value maximizers. At the same time, the increasing interconnectedness of the economy, and society more broadly, undermines the second assumption. There is ample empirical evidence that microeconomic shocks to a well-identified subset of "central" firms can propagate through the existing interconnections and generate catastrophic consequences. We argue that corporate law should reflect these features of contemporary economies. On the one hand, it should aim to ensure that noncentral firms maximize their own value, despite the rise of portfolio value maximizers. On the other hand, central firms' corporate law should harness the preferences of portfolio value maximizing shareholders with the goal of minimizing the risk of catastrophic externalities like climate change or financial crises. We develop a framework to guide policymakers in the pursuit of this new, fundamental conception of corporate law and illustrate how this rewiring of corporate law could work out by taking ownership disclosure rules as an example. [ABSTRACT FROM AUTHOR]

Regulators generally have tried to address the problems posed by the excessive risk-taking of Systemically Important Financial Institutions (SIFIs) by placing restrictions on the activities in which SIFIs engage. However, the complexity of these institutions makes such attempts necessarily imperfect. This Article proposes to address the problem at its very source, which is the incentives that SIFI owners have to push for excessive risk-taking by managers. Building on the traditional rule of "double liability," we propose to modify the current (general) rule limiting the liability of SIFI shareholders to the amount of their initial investments in such companies. We propose replacing the extant limited liability regime with a new system that imposes additional liability over and above what SIFI shareholders already have invested in a preset amount that varies with a SIFI's centrality in the financial network. Our liability regime has a number of advantages. First, by increasing shareholder exposure to downside risk, it discourages excessive risk-taking. At the same time, by placing a clearly defined ceiling on shareholders' total liability exposure, it will not obliterate shareholders' incentives to invest in the first place. Second, the liability to which shareholders are exposed is carefully tailored to the level of systemic risk that their institution creates. Thus, our rule induces shareholders to account for the negative externality SIFIs can impose without unduly stifling such financial institutions' role within the financial system and in the wider economy. Third, as the amount of liability is clearly defined ex ante using the rigorous tools of network theory, our rule minimizes the influence of interest groups and the impact of idiosyncratic government decisions. Last, as markets know in advance the amount of liability to which shareholders are exposed, our rule favors the creation of a vibrant insurance and derivative market so that the risk of SIFIs defaults can be allocated to those who can better bear it. [ABSTRACT FROM AUTHOR]

This article analyzes a private ordering solution to multiforum shareholder litigation: exclusive forum provisions in corporate charters and bylaws. These provisions require that all corporate-law-related disputes be brought in a single forum, typically a court in the statutory domicile. Using hand-collected data on the 746 U.S. public corporations that have adopted the provision, we examine what drives the growth in these provisions and whether, as some critics contend, their adoption reflects managerial opportunism. We find that nearly all new Delaware corporations adopt the provision at the IPO stage, and that the transition from zero to near-universal IPO adoption over 2007-2014 is driven by law firms. Characteristics of individual companies appear to play little or no role in adoption decisions. Instead, the pattern of adoption follows what can be described as a light-switch model, in which law firms suddenly switch from never adopting to always adopting the provision in the IPOs they advise. For post-IPO (or 'midstream') adoptions, we compare corporate governance features of adopters to a matched sample of nonadopters to test the hypothesis that midstream bylaw adoption reflects managerial opportunism. If the hypothesis were correct, then we would expect to find that the midstream adopters exhibit poor corporate governance compared to nonadopters (using the metrics of good governance practices as identified by critics of the provisions). We find, however, that there are either no significant differences in governance or that it is adopters that have higher-quality governance features. We also find no significant differences in governance and ownership structures between firms whose boards adopt the provisions as bylaws and those who obtain shareholder approval. The absence of significant differences across firms using disparate adoption procedures suggests that the method of adopting an exclusive forum provision-whether with or without shareholder approval-should not be a matter of import for investors. [ABSTRACT FROM AUTHOR]

This article examines the impact on shareholder voting of the Securities and Exchange Commission (SEC)'s mutual fund voting disclosure rule, using a paired sample of management proposals on executive equity incentive compensation plans submitted before and after the rule change. In enacting the rule, the SEC intended to increase funds’ engagement in corporate governance. While voting support for management has decreased over time, we find no evidence that mutual funds’ support for management declined after the rule change, as expected by the SEC and advocates of disclosure. In fact, we find evidence of increased support for management by mutual funds after the change. [ABSTRACT FROM AUTHOR]

Studies the impact of adoption of confidential voting through a panel data set of shareholder and management proposals at firms that adopted the practice. No significant effect of the adoption of confidential voting on voting outcomes and firms' stock performance.

Assesses the effectiveness of shareholder litigation as an incentive-alignment device, by examining lawsuits brought against a selected sample of publicly traded firms. Liability of directors and officers to shareholders; Benefits from shareholder suits; Source of value from litigation.