Jonathan Macey is Sam Harris Professor of Corporate Law, Corporate Finance and Securities Law at Yale Law School and Professor in the Yale School of Management. This post is based on his recent paper.
Stopping controlling shareholders from taking actions that benefit themselves at the expense of non-controlling (minority) shareholders is an incredibly valuable and worthwhile thing for courts to do. Delaware historically excelled at this. Incorporating in Delaware long was considered to be wise (and efficient) for companies for the very reason that Delaware was steadfast in protecting minority investors in its corporations.
Incorporating in a jurisdiction that protects minority investors is not an act of altruism for controllers. Protecting minority investors does not benefit only the minority. Controllers also benefit when minorities are protected because such protection enables the controllers to attract investment dollars from non-controlling minority investors on better terms than would have been possible if investors lacked judicially enforced legal rights and protection against controller opportunism. In economic terms, protecting minority shareholders is pareto efficient because such protections make both controllers and minority investors better off.
