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Predatory Value ExtractionHow the Looting of the Business Corporation Became the US Norm and How Sustainable Prosperity Can Be Restored$
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William Lazonick and Jang-Sup Shin

Print publication date: 2019

Print ISBN-13: 9780198846772

Published to Oxford Scholarship Online: January 2020

DOI: 10.1093/oso/9780198846772.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 14 August 2020

The Value-Extracting Enablers

The Value-Extracting Enablers

Chapter:
(p.90) 5 The Value-Extracting Enablers
Source:
Predatory Value Extraction
Author(s):

William Lazonick

Jang-Sup Shin

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198846772.003.0005

This chapter explains historical and systemic sources of institutional activism. Starting from re-examining underlying principles of New Deal financial regulations established in the 1930s that discouraged institutional activism, it argues that they were overturned in the 1980s and 1990s in the name of promoting “shareholder democracy.” It analyzes these misguided regulatory “reforms” including the introduction of compulsory voting by institutional investors, a proxy-voting rule change that greatly facilitated aggregation of proxy votes by predatory value extractors. The chapter argues that those reforms created a large vacuum in corporate voting because, contrary to the ideal of shareholder democracy and particularly with the increasing dominance of index funds, institutional investors had little ability and incentive to vote the shares in their portfolios. The main beneficiaries of these reforms have been the leading proxy advisory firms and a small group of hedge-fund activists intent on looting the business corporation.

Keywords:   Institutional activism, New Deal financial regulations, proxy voting, compulsory voting, index funds, shareholder democracy, proxy advisory firms, hedge-fund activists

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