Professor named to top 10 list for Corporate and Securities article

An article by USC Law Professor Eric Talley was named one of the 10 “Best Corporate and Securities Articles of 2004” by the Corporate Practice Commentator, a quarterly newsletter.

Talley co-authored “Unregulable Defenses and the Perils of Shareholder Choice” with Jennifer Arlen, a New York University law professor and former USC law professor (1994-2002).

The article examined the costs and benefits of granting shareholders more governance power particularly in the context of takeovers. It was selected by professors in corporate and securities law.

"Because the Corporate Practice Commentator award is the product of a vote by one's colleagues in the profession, it's a very nice form of recognition,” Talley said.

In their piece, Talley and Arlen argue that in some cases, granting shareholders enhanced rights to oversee takeover defenses might, ironically hurt shareholder interests over the long run.

“A number of corporate law scholars have recently proposed various types of shareholder empowerment schemes,” Talley said. “Most commentators agree that shareholder oversight is justified only insofar as shareholders enjoy a bona fide advantage over managers in evaluating and responding hostile bids, and thus the debate has generally circulated around whether shareholders hold such an advantage.”

Talley and Arlen challenge even that basic premise, arguing that even if shareholders did enjoy an advantage over management in reacting to hostile bids, it does not follow that a shareholder choice regime is desirable. The core reason, according to Talley, is that takeover bids happen only infrequently, and at the end of a process that is inescapably dominated by day-to-day managerial decisions.

“And therein lies the rub,” Talley concludes. “A shareholder choice regime could give managers an incentive to search early on for ways to manipulate governance, contracting practices, or corporate culture in ways that make the firm an unattractive takeover target to begin with,” Talley said.  “If management’s reaction ensures that no takeover bid ever occurs, then the additional leverage that shareholders have in evaluating such bids would be a hollow victory.”