Controllers Unbound

In an attempt to protect its dominant position in the market for incorporations, Delaware recently relaxed the constraints on public company controllers. This article analyzes how the relaxation of controller constraints is expected to affect public investors and the economy. In particular, we show, this relaxation should be expected to:
(i) provide controllers with substantial private benefits through six several channels that we identify and discuss:
(ii) impose even larger costs to public investors and thereby generate consider-able efficiency costs and reductions in corporate value;
(iii) transform ownership patterns over time—leading both to an increase in the prevalence of controlled companies and to a decline in the ownership stakes held by controllers; and
(iv) lower the quality of investor protection in U.S. controlled companies to a level significantly below that observed in other advanced economies.
The looming risks we identify for both public investors and the broader economy raise serious concerns for anyone interested in investor protection and eco-nomic performance.