The Controversy About
Corporate Restructuring and
Investor Activism
Whose Company is This,
Anyway?
•
•
•
•
•
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Government?
Community?
Employees?
Customers?
S
Suppliers?
li ?
Stockholders?
Many Stakeholders—
Whose Claims Have Precedence?
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Whose Company is This,
Anyway?
•
•
•
•
•
•
Government?
Community?
Employees?
Customers?
Suppliers?
Stockholders?
Answer:
• The corporation is its own
person before the law
• Courts will protect it even
from its stockholders
Many Stakeholders—
Whose Claims Have Precedence?
Corporate Ownership Isn’t
Always the Best Policy
• Tax Reasons
• Clarified Claims (From Investors’ Point of
View)
– Claim to Rents
– Access to Title in Case of Default
• Control Over Reinvestment of Cash Flows
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Arguments Against Restructuring
• Abuses Mortgage Our Future
– Too Much Emphasis on Short Term
– Not Enough Investment in New Technology
• Shareholders Have Too Much Power
– Corporations are Complex Social Institutions
– Not Mere Money Machines for Stockholders
• What About Shareholders
Shareholders’ Responsibility?
– Patient Capital
– Willingness to Share with Other Stakeholders
What’s Wrong With These Arguments?
Arguments For Restructuring
• Market is Best Allocator of Resources
– Capital Market Not Myopic
– Investments in R&D are Rewarded
– Ditto Investments in New Plant & Equipment
• Managers Have Too Much Power—More Power to
Shareholders
– Conglomerates Are Counter-Productive
– Companies
C
i Don’t
D ’ B
Belong
l
to Managers
M
• What About Shareholders’ Rights?
– Efficient Use of Capital
– Timely Return of Capital
How About These Arguments?
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Role of Investment Bankers &
Institutional Investors
• Pension Funds Discover Proxies
• The Power of Pension Funds
– U.S. Pension Fund Assets Bigger Than Japan’s GNP
• Pension Funds to Politicians: Hands Off!
– Politicians Attempt to Influence Funds
– Politicians Seek “Economically-Targeted Investments”
• Active
A ti Bl
Block
k IInvestors
t
– Barclay & Holderness Article
• Corporate Control and the Politics of Finance
– Michael Jensen’s Article
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