Abstract. The corporate governance debate mainly deals with the effectiveness of techniques to protect shareholders from the controllers’ misbehaviour. This article takes a different approach. Focussing on self-dealing, it shows that effective strategies to protect investors from expropriation differ from country to country. However, some may be more efficient than others. The inefficiency of an effective discipline of self-dealing stems from the constraints it imposes on the discretion of controlling managers and shareholders. This article shows that both the US litigation-based model and the UK governance-based model are effective against expropriation, but their efficiency can be improved. In light of this, this article recommends restricting the influence of non-controlling shareholders to the selection of a minority of independent directors, whose task should be limited to monitoring and validating self-dealing. These findings can be extended from self-dealing to similar conflicts of interest that may lead to expropriation of shareholders, and to their regulation in other jurisdictions.

Conflict of interests (Agency), Corporate governance, Laws, regulations and rules, Minority stockholders, discretion and accountability, economic analysis of law, enforcement, independent directors, institutional investors, self-dealing, shareholder litigation
Government Policy and Regulation (jel G38), Corporation and Securities Law (jel K22), Illegal Behavior and the Enforcement of Law (jel K42)
dx.doi.org/10.5235/147359711795344154, hdl.handle.net/1765/34944
The Journal of Corporate Law Studies
Submitted Author Manuscript
Rotterdam Institute of Law and Economics

Pacces, A.M. (2011). Controlling the Corporate Controller’s Misbehaviour. The Journal of Corporate Law Studies, 11(1), 177–214. doi:10.5235/147359711795344154