Corporate Governance after the Financial Crisis
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Corporate Governance after the Financial Crisis

Edited by P. M. Vasudev and Susan Watson

The financial crisis of 2008–09 raises questions about the assumptions that underpin corporate governance. Shareholder value and private ordering may not in fact be the best means of promoting efficiency and corporate responsibility and the mechanisms used to ensure management accountability may not be effective. In this fascinating study, experts from around the world draw on the experience of the financial crisis to explore topical issues ranging from shareholder primacy and the corporate objective to the stakeholder principle, business ethics, and globalization of corporate governance principles. The chapters are provocative, acknowledging that our understanding of fundamental questions of corporate governance is still developing and demonstrating that the corporate governance debate is far from over.
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Chapter 7: Institutional Investors as Blockholders

Aviv Pichhadze


Aviv Pichhadze INTRODUCTION 1 In describing the rise to prominence of the shareholder-oriented model of the corporate form, Hansmann and Kraakman (2004) noted, inter alia, that this process involved the diffusion of public firm ownership and the rise to prominence of the institutional investors (IIs). In the context of IIs, Hansmann and Kraakman (2004) noted that the interests of this shareholder group coincide ‘with those of public shareholders and . . . [IIs] are prepared to articulate and defend those interests’ (p. 49). In addition, they noted that ‘[t]hese institutions not only give effective voice to shareholder interests, but promote in particular the interests of dispersed public shareholders rather than those of controlling shareholders or corporate insiders’ (ibid.). Finally, in this context, they note that ‘the new activist shareholder-oriented institutions [i.e., IIs] are today acting increasingly on an international scale . . . We now have not only a common ideology supporting shareholder-oriented corporate law, but also an organized interest group . . . that is broad, diverse, and increasingly international . . .’ (ibid.). Accordingly, IIs seem to (i) have interests that coincide with the interests of the shareholder body in general in the public firm, (ii) promote dispersed ownership, and (iii) crusade for shareholder interests internationally. Hence, they play an important role in corporate governance both domestically in the US and internationally. In this chapter, I examine these three propositions. I do this against the background of Pichhadze’s Market Oriented Blockholder Model (MOBM) that shows that the new blockholder in the American public equity markets is the II...

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