Professor Nitzan Shilon’s research is featured in a new Reuters Money column by James Saft entitled, Boards Should Put Money Where Their Mouths Are in Hostile Offers. The column reports on Professor Shilon’s innovative suggestion for improving shareholder protection from underpriced bids in hostile takeover situations: “Nitzan Shilon, of the Peking University School of Transnational Law, proposes a novel solution: encouraging outside directors of boards to put ‘their money where their mouths are in rejecting bids. In brief, the idea is to encourage outside board members to pledge, at the same time as they reject a bid, to buy shares in the company at the bid price and hold them for a pre-agreed time.”
The column quotes from Professor Shilon’s recent article, Putting Directors’ Money Where Their Mouths Are: A New Approach to Improving Corporate Takeover Dynamics:
The systemic failure in protecting shareholders in takeover situations is not all due to the conflict of interest between target boards and their shareholders or to the lack of judicial tools to review board decisions effectively; it is also due in part to the legal rules prohibiting boards from showing their genuine opposition to the bid by committing to buy, if the bid fails, some shares of the target firms.
James Saft concludes that, “A board whose outside directors pledge to use one third of their cash compensation to purchase stock from the corporation, for example, and hold it for at least three years, would send a very clear and valuable signal to shareholders.”
Professor Shilon’s article, which he is presenting at the 33rd Annual Conference of the European Association of Law and Economics at the University of Bologna, also is the subject of a recent post on The Harvard Law School Forum on Corporate Governance and Financial Regulation.