Less is More:
Making Institutional Investor Activism a Valuable
Mechanism of Corporate
Governance
Institutional investors have
increasingly engaged in corporate governance activities, introducing proxy
proposals and negotiating with management, with a goal of improving corporate
performance. As shareholder activism has increased, financial economists have
sought to measure its effect on performance. This Article reviews the corporate
finance literature on institutional investors’ activities in corporate
governance and uses the findings of the empirical literature to inform
normative recommendations for the proxy process. In brief, there is an apparent
paradox: notwithstanding the development of shareholder activism and
commentators’ generally positive assessments of it, the empirical research
indicates that such activism has little or no effect on targeted firms’
performance. This implies that activist institutions ought to reassess their
agendas, in order to use their resources more effectively. The Article takes a
two-pronged approach to furthering this aim. First, it suggests a mechanism of
internal control, whereby funds would engage in periodic review of their
shareholder-activism programs to identify the most fruitful governance
objectives. Second, it seeks ways to provide incentives to undertake such
internal reevaluations, advocating elimination or significant reduction of the
subsidy of proposal sponsorship under the SEC rules unless a proposal achieves
substantial voting support or permitting firms’ shareholders to choose what
level of subsidy they wish to provide to proposal sponsors. The estimated
savings from eliminating the subsidy for proposals that fail to receive at
least 40% of the votes ranges from $293 million to $1.9 billion.
Reconceptualizing the Expert Witness: Social Costs,
Current Controls
and Proposed Responses
Unlike virtually any other business, expert
witnesses are not typically held accountable in either tort or contract law for
their commercial activities. This means that many are inclined to deliver what
the market demands—partisan, biased, or plainly dishonest testimony—without
concern for the costs this testimony may impose on others. This immunity from
the internalization of the social cost of their testimony is hard to reconcile
with any moral or economic standard. Harsh judicial reactions to some experts
and a slight increase in expert witness liability may signal that a change in
the privileged status of experts is in the offing.
This Article examines the social costs of the
current system and surveys the ways in which courts and adversely affected
parties have attempted to bring expert witness excesses under control. The
efforts range from judicial attempts to embarrass experts to actions by the
parties retaining the expert and by those adverse to the expert. In the end,
none of these measures seem to have had much effect.
Two
general proposals are made. The first is to decrease appeals to judges and
jurors based on institutional authority. Institutional authority—the reliance
on credentials—can be misleading in two ways. First it may suggest more about
the competency of the witness than is warranted. Second, it may be taken to
mean that the highly credentialed expert is more likely to be objective. This
is also an unwarranted inference. The second proposal is to make experts more
accountable to both friendly and adverse witnesses. This liability would be
based on deviations in testimony from what the expert knows or should know
would be acceptable by peers in his or her area of expertise.
Lili Levi
Professionalism,
Oversight, and Institution-Balancing: The Supreme
Court’s “Second Best” Plan
for Political Debate on Television
Televised political debates have
become a staple of modern elections. Proponents of open access to such debates
argue that third party participation is a democratic necessity. They see as
catastrophic the Supreme Court’s decision in Arkansas Educational
Television Commission v. Forbes,
in which a state broadcaster was given the discretion to exclude a minor party
candidate from a televised debate so long as the decision was
viewpoint-neutral. This Article reads the Court’s decision as a functional,
“second best” solution that seeks to mediate the expressive and democratic
values implicated in both open and closed-access models. More generally, the
Article sees in Forbes
germs of an institution-balancing vision of politics in the media. Under this
approach, public broadcasters would be empowered to serve as realistic
programming counterweights to the electoral coverage of the commercial media.
While there are reasons to be skeptical about the ultimate effectiveness of
this institution-balancing strategy, only until refined, election-specific and
historically-grounded data are collected and assessed in a context-specific
fashion can we begin to evaluate the Court’s approach in application.
Promoting Patient Safety:
Creating a Workable Reporting System
Over the last year, medical error has become
a prominent issue. As policymakers and
health professionals begin to address the issue, they are turning towards
reporting systems as a way of determining the magnitude and nature of the
problem. This Note provides a framework
for creating and evaluating useful reporting systems. Reporting systems are
important tools for describing the kinds of situations that result in medical
error, but high-quality reporting requires two changes: removing legal and
practical disincentives to reporting and fostering reporters’ dedication to
reporting. This Note concentrates on
the legal issues and ultimately proposes a brightline rule protecting
confidentiality of incident reports made for the purposes of quality management.