Hedge Funds and Risk-Decoupling — The Empty Voting Problem in the EU — The Harvard Law School Forum on Corporate Governance

Small business of-interest and news-to-watch.   Definition and an explanation

Excerpt:   I address the implications of negative risk-decoupling, otherwise known as empty voting, for corporate governance and corporate finance, and I develop suggestions for a regulatory response. These suggestions are framed for the European context, but the underlying policy considerations may prove useful for other regulators worldwide, including the SEC.

Empty voting is a popular strategy amongst hedge funds and other activist investors. In short, it is the attempt to decouple the economic risk from the share’s ownership position, retaining in particular the voting right without risk. This paper uses three perspectives to analyze the problems created by such negative risk-decoupling:

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