When the Government Is the Controlling Shareholder

As a result of the 2008 bailouts, the U.S. government became the controlling shareholder of some major U.S. corporations: AIG, Citigroup, GM GMAC, Fannie Mae, and Freddie Mac. Corporate law provides a complex and comprehensive set of standards of conduct to protect noncontrolling shareholders from controlling shareholders who have goals other than maximizing firm value. In this Article, we analyze the extent to which these existing corporate law structures of accountability apply when the government is the controlling shareholder and the extent to which federal "public law" structures substitute for displaced state "private law" norms. We show that the Delaware restrictions on controlling shareholders are largely displaced, but hardly replaced, by federal provisions. Having concluded that the existing accountability structures do not provide sufficient protection of minority-shareholder interests, we examine the variety of ways (in the United States and elsewhere) in which government ownership has been structured in order to minimize political interference at the expense of noncontrolling shareholders, including nonvoting stock, independent directors, dedicated trusts, and separate management companies. Because neither ex ante legal structures nor ex post judicial review hold much promise for controlling political interference, we are left with a choice between developing new structures of accountability and bringing this anomalous era of government control to a speedy conclusion. As the U.S. Treasury moves forward with its plans for taking some of these companies public again, understanding the legal restrictions on the government as controlling shareholder is critically important to the decision to buy shares in an IPO and, if so, at what price.