Shareholder Eugenics in the Public Corporation

In a world of active, empowered shareholders, the match between shareholders and public corporations potentially affects firm value. This Article examines the extent to which publicly held corporations can shape their shareholder base. Two sorts of approaches are available: “direct” or “recruitment” strategies and “shaping” or “socialization” strategies. Direct or recruitment strategies, which attract “good” shareholders to the firm, include going public, targeted placement of shares, traditional investor relations, the exploitation of clientele effects, and “de-recruitment.” Shaping or socialization strategies, which transform shareholders of a “bad” or unknown type into shareholders of the “good” type, include choice of domicile, choice of stock exchange, the new “strategic” investor relations, and capital structure. For each type of strategy, I consider the extent to which corporate and securities law facilitates or interferes with the strategy as well as the ways in which it controls abuse. In examining the relationship between shareholder base and firms, this Article attempts to merge investor relations, very broadly construed, with corporate governance.