The Deconstruction of Equity ─ Activist Shareholders, Decoupled Risk, and Corporate Governance

New investment techniques and new types of shareholder activists are shaking up the traditional ways of equity investment that informs much of our present-day corporate law and governance. Savvy investors such as hedge funds are using financial derivatives, securities lending transactions, and related concepts to decouple the financial risk from shares. This leads to a distortion of incentives and has potentially severe consequences for the functioning of corporate governance and of capital markets overall.

Taking stock of the different decoupling strategies that have become known over the past several years, this book then provides an evaluation of each from a legal and an economic perspective. Based on several analytical frameworks, the author identifies the elements of equity deconstruction and demonstrates the consequences for shareholders, outside investors, and capital markets. On this basis, the book makes the case for regulatory intervention, based on three different pillars and comprising disclosure, voting right suspension, and ex-post litigation. The book concludes by developing a concrete, comprehensive proposal on how to address the regulatory problem.

Overall, this book contributes to the debate about activist investment and the role of shareholders in corporate governance. At the same time it raises a number of important considerations about the role of equity investment more generally.

Wolf-Georg Ringe, Professor of International Commercial Law, Copenhagen Business School & University of Oxford

Wolf-Georg Ringe is Professor of Law and holds a chair of International Commercial Law at Copenhagen Business School; he also teaches at the University of Oxford, Faculty of Law. He has held visiting positions at various institutions around the world, most recently a visiting professorship at Columbia Law School, New York (spring 2014). Professor Ringe specializes in European and transatlantic issues of corporate and financial law. He is the editor of theJournal of Financial Regulation, a new interdisciplinary journal published with OUP since 2015.

Georg Ringe has been advising both the European Commission and the European Parliament on issues of European corporate law. He teaches various courses in the field of corporate and business law, and his current research interests are in the general areas of Law and Finance, Comparative Corporate Governance, Financial Regulation, Insolvency Law, and Conflict of Laws.