AUSTIN, Texas — Research by Professors Henry Hu and Bernard Black of The University of Texas School of Law on what they call "the new vote buying" was featured in the June 26 issue of Investment News and the June 26 issue of The Daily Telegraph (London).
The Investment News story profiles Hu and includes a 1,500-word interview in which Hu discusses a new article he co-authored with Black. The Daily Telegraph story states that "Henry Hu and Bernard Black are among a small group of academics to have researched the influence hedge funds have on takeovers."
Hu and Black's research represents the first systematic attempt to address "the new vote buying" and its corporate governance implications. This phenomenon, often involving hedge funds, is beginning to affect corporate governance throughout the world.
The vote is the core source of shareholder power. And corporate law generally makes voting power proportional to economic ownership: one share, one vote. Hu and Black analyze how the derivatives revolution and other capital market developments now allow both outside investors and insiders to readily “decouple” economic ownership of shares from voting rights.
This phenomenon can lead to such situations as a person with no economic interest
whatsoever in the company—or, indeed, a person with a negative economic
interest in the company--nevertheless having voting rights.
But, as the Daily Telegraph noted, "Hu and Black point out that the entire legal and regulatory framework governing corporations is premised on the assumption that the economic benefit of owning shares and the votes that come with those shares are coupled." The two professors set out the functional elements of decoupling and a taxonomy, propose a near-term disclosure-based response, and outline a menu of longer-term regulatory choices. See Sara Hansard, “One on One With Henry Hu of the University of Texas School of Law,” Investment News, June 26, 2006, at 47; Iaian Dey, "The power brokers," The Daily Telegraph (London), June 26, 2006 at 7; and Henry T. C. Hu & Bernard Black, “The New Vote Buying: Empty Voting and Hidden (Morphable) Ownership,” 79 Southern California Law Review 811-908 (2006).
The Investment News story is available at:
The Daily Telegraph (London) story is available at:
The Southern California Law Review article is downloadable at:
Henry T. C. Hu holds the Allan Shivers Chair in the Law of Banking and Finance at The University of Texas School of Law and is interested in, among other things, the law and economics of corporate governance and corporate and international finance. Hu was chair of the Association of American Law Schools’ Business Associations section in 1996. During 1997-98, he taught at Harvard Law School as the Bruce W. Nichols Visiting Professor. In 2000, he was appointed to the National Association of Securities Dealers’ Legal Advisory Board, in 2001, to NASD Regulation’s e-Brokerage Committee, and in 2006, to NASD’s Market Regulation Committee. He is a member of the American Law Institute.
Bernard S. Black holds the Hayden W. Head Regents Chair for Faculty Excellence at The University of Texas School of Law, is professor of finance at UT’s McCombs School of Business, and managing director of the Legal Scholarship Network. Before coming to Texas, he was professor at Stanford Law School (1998-2004) and Columbia Law School (1988-1998). He has been an advisor on company law, securities law, and corporate governance in Armenia, Brazil, Indonesia, Korea, Mongolia, Russia, Ukraine, and Vietnam.
About Professor Hu: http://www.utexas.edu/law/faculty/huht/
About Professor Black: http://www.utexas.edu/law/faculty/bsb345/
Hedge Fund Voting Paper by Professors Henry Hu and Bernard Black Discussed in Corporate Control Alert: http://www.utexas.edu/law/news/2006/031706_governance.html