If You Give Shareholders Power, Do They Use it? Comment

Whether expanding voting rights of shareholders leads to improved corporate governance is a matter of controversy. BEBCHUK [2005, p. 836] argues that increased voting rights lead to better-aligned incentives of managers. ROMANO [1993, pp. 56f.] has a more skeptical view and maintains that, in the absence of mechanisms to overcome free riding, the expansion of shareholder voting rights is unlikely to increase the clout of shareholders. BAINBRIDGE [2006, p. 1751], on the other hand, fears that such rights will be exercised and could be abused by publicity-seeking shareholders. LISTOKIN [2010] presents empirical evidence and concludes that increased voting rights are indeed ineffective. His argument starts out from the observation that in the 1980s and early 1990s many U.S. states enacted anti-takeover protection (ATP) statutes. They were mostly implemented as default regimes differing in one important aspect: whether to opt out of the provisions requires managers' consent or not. The evidence shows that those states that do not grant managers veto powers do not experience higher rates of opt-out. According to Listokin, this can be explained by one of the two following hypotheses: Either ATP statutes are efficient, so that shareholders do not wish to opt out of them, or shareholders, despite their voting rights, still do not have enough power. If the former hypothesis were true, he claims that one would expect to see contractually created ATP in those states without ATP statutes. Yet, evidence suggests that this is not the case. Hence, the author concludes that failure to opt out of ATP must be due to the fact that increased voting rights are ineffective. In the following I present a few explanations that are equally consistent with the observed empirical data but do not lead to the author's conclusion. They still need to be addressed in order to make the author's point more compelling