The Value of Insider Control

According to conventional wisdom, insider control of businesses is detrimental to the interests of noncontrolling investors. Family-run businesses, in particular, are seen as nepotistic and inefficient. Yet, commentators have overestimated the dangers of insider control and overlooked its potential benefits for all stakeholders. Controlling owners have a personal stake that gives them reason to identify with their business and to adopt responsible business practices capable of creating lasting value.

A stewardship model of insider control helps explain the continuing vitality of family businesses as well as the success of recent public offerings by Facebook, Google, and Snapchat involving low-vote or no-vote stock. Consequently, this Article criticizes efforts to limit insider control categorically—for example, recent moves by stock exchanges to block companies that issue stock with unequal voting rights. To the extent controlling shareholders are tempted to abuse their control in particular cases, this Article contends that the fiduciary duties of care and loyalty provide an appropriate basis for judicial monitoring.