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Curbing Rent-Seeking by Activist Shareholders: A British Approach

During the 1980s, large shareholders, such as Sir James Goldsmith, abused their positions in public corporations to extract “greenmail.” In one case, Goldsmith extracted $90 million in greenmail from the Goodyear Tire and Rubber Company. Today, the federal government has discouraged such behavior by imposing a 50 percent excise tax on greenmail. However, similar behavior remains unimpeded by state corporation law, thereby inviting another federal intervention. First, the article will analyze current restrictions on rent-seeking by activist shareholders. Second, the article will survey the United Kingdom's Companies Act of 2006 to identify mechanisms that limit rent-seeking by activist shareholders. And finally, the article will provide prescriptions against rent-seeking by activist shareholders based upon the results of the survey of the Companies Act.