Between the FTC’s efforts to persuade judges that antitrust laws mean whatever it says they mean and the anti-ESG crowd’s position that group initiatives targeting climate issues involve “climate cartels,” it seems hard to imagine that anyone could stretch traditional antitrust principles any further. Well, Michael Levin at The Activist Investor recently flagged a new article from Prof. Danielle Chaim of Israel’s Bar-Ilan University that says “hold my beer.” Here’s an excerpt from the abstract:
This Article offers a novel — antitrust — perspective on a growing phenomenon in capital markets: institutional investor coalitions. It reveals the anticompetitive risks that investor coalitions pose and challenges the prevailing positive view of this development in capital markets. Traditionally, corporate law has encouraged investor cooperation, regarding it as the solution to the well-known collective-action problem facing public shareholders.
As this Article shows, however, the recent evolution of investor alliances into powerful, orchestrated coalitions often emerge at the border between firms and markets, affecting not only the intra-firm governance arrangements of the companies held by the coalition members but also the capital markets themselves. At the firm–market border, cooperation among institutional investors — even around seemingly benign corporate governance issues — provides an opportunity for tacit collusion that grants members an unfair advantage in the markets in which they compete.
As an example of this anti-competitive conduct, Prof. Chaim cites institutional investor efforts to end the use of dual class structures in IPOs. She contends that because of their buy-side power, this effort “creates a cartel of buyers in the primary market, resulting in two potential economic distortions: (1) abnormal underpricing of dual-class offerings and (2) suboptimal governance arrangements.”
Since I’m on record as saying this whole anti-dual class crusade is one of the most disingenuous “good governance” campaigns ever waged, I get a kick out of this argument. What I love most about it is that it basically says that while institutional investors and their advocates whine about the need for government intervention because “collective action” problems among investors are insurmountable, they’re actually engaging in collective action that’s so formidable it violates the antitrust laws.
Sadly, I think the argument is a stretch and I won’t hold my breath waiting for a court to sign off on it. But a guy can dream, can’t he?
— John Jenkins, TheCorporateCounsel.net, January 25, 2023