Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, August 8, 2010

Black on the U.S. Government as Reluctant Shareholder

The U.S. as 'Reluctant Shareholder': Government, Business and the Law, by Barbara Black, niversity of Cincinnati - College of Law, was recently posted on SSRN.  Here is the abstract:

Through the TARP program, the government became a substantial equity holder in five major U.S. companies: American International Group, Inc.(AIG), Citigroup Inc. (Citigroup), General Motors Company (GM), Chrysler Group LLC (Chrysler), and GMAC Inc.(GMAC), now known as Ally Financial Inc. (Ally). How the government behaves when it is a significant shareholder in private business is a subject worthy of examination. That is the primary purpose of the paper.

I closely examine the government's actions as an equity holder, beginning with the closest parallel to the current situation, the Federal Deposit Insurance Corporation’s 1984 acquisition of an 80% ownership interest in the public holding company of Continental Illinois National Bank and Trust Co. I then look at the 2008-09 bailouts of AIG, Citigroup, GM, Chrysler and Ally and trace the development of a policy for how the government acts as a shareholder and show that, notwithstanding the government's assertions of a "reluctant shareholder" policy, the government has been deeply involved in these companies as a creditor, regulator, and legislator.

Finally, I argue that government intervention in business has become sufficiently regular that the government should develop policies for the future so that its actions are more forthright and transparent. To that end, I set forth a modest proposal consisting of three suggestions. First, when Treasury is a substantial shareholder, it should work with corporate management to provide the general public regularly with clear specific statements about government intervention and its effect on the corporation. The second and third proposals contemplate that the government will exercise the customary power of a substantial shareholder and select directors who will represent the taxpayers’ interests in the boardroom. Treasury’s active participation in the corporate boardroom could promote greater understanding of the respective positions of government and business and alleviate some of tensions and conflicts resulting from the uneasy alliance of government and business.

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