Archive for February, 2014

Negative voting and derivative markets

February 16, 2014 Leave a comment

This post will allow us to present a feature of derivative markets that should be a concern, given the rise in trading volume in these markets and increased activism and rights and empowerment held and granted to shareholders. We will comment a post and article by Holger Spamann, Harvard Law School, on Friday October 5, 2012. (1)

The idea can be described as follows: a share or debt holder has a stake in the company, and is interested that those assets increase their value. Nevertheless, he may also have bought a short position that more than offsets his interest, so that his total interest is short, that is, he would be favored by a decrease in the price of the assets. The concern in this case is that he could use his rights as a shareholder or debt holder to pursue that goal and against the interest of shareholders or the company. Read more…


The Team Production Theory of Corporate Law

February 8, 2014 1 comment

I had recently access (thanks to a post at to a video by Margaret Blair in which she fantastically described her Corporate Law Theory, the “Team Production Theory”, which she defends with Lynn Stout and others. (1) (2).

This led me to recover an article by Margaret Blair, (3) to which I will dedicate this post.

Mrs Blair first brings forward the fact that the previous main advocates of the Principal-Agent theory of Corporate law have somehow changed their views. Those that strongly defended that the corporate purpose should be maximizing shareholder value and that boards should have primarily an “oversight” role, (such as Jensen , Jack Welch, Lucien Bebchuk and others) at least admit now some loopholes in their previous statements.

She then presents a different theoretical framework, that arises after recognizing the firm as a tool where a “team production problem” is solved, where all participants in a complex productive activity want others to “fully cooperate providing their inputs”, but are unable to draft the complete and detailed contracts that would help them achieve that objective. (4)

The theory challenges the Principal-Agent proposal, as it doesn`t make a choice as to who in the team is the principal; all of them are interested in obtaining the maximum cooperation from the rest of participants, and, according to the theory supporters, it explains better actual boards` behavior and depicts a different picture of how they should act. Read more…