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Corporate Governance

: The Harvard Law School Corporate Governance Blog

When the Government Is the Controlling Shareholder

By Harvard Law School Program on Corporate Governance

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Editor?s Note: This post comes to us from Marcel Kahan, Professor of Law at New York University and Edward Rock, Professor of Business Law at the University of Pennsylvania.

In our paper When the Government Is the Controlling Shareholder, recently made publicly available on SSRN, we analyze the ways in which existing corporate law structures of accountability change when the government is the controlling shareholder, and the extent to which federal ?public law? structures substitute for displaced state ?private law? norms.

As a result of the 2008 bailouts, the United States Government is now the controlling shareholder in AIG, Citigroup, GM, GMAC, Fannie Mae and Freddie Mac. Corporate law provides a complex and comprehensive set of standards of conduct to protect noncontrolling shareholders from controlling shareholders who have goals other than maximizing firm value, but are designed with private parties in mind. We show that when the government is the controlling shareholder, the Delaware restrictions are largely displaced, but hardly replaced, by federal provisions. When GM goes public again, government ownership of a controlling position will be a significant ?risk factor.?

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Full post as published by The Harvard Law School Corporate Governance Blog on August 18, 2010 (boomark / email).