Description

The foundational premise of the stockholder franchise is that coupling the economic rights of shares with their voting rights will generally motivate value-enhancing voting. With transactions otherwise subject to judicial review under entire fairness or enhanced scrutiny standards, Delaware courts have long given “cleansing” effect only to votes of “disinterested stockholders.” Corresponding issues arise from merger agreement “unaffiliated” stockholder vote provisions. While the landmark 2025 Delaware Senate Bill 21 amendments established a statutory definition of “disinterested stockholder,” they did not modernize the construct or establish a procedural architecture for determining disinterestedness.

The co-authored Spring 2025 Business Lawyer article on which the lecture is primarily based starts by analyzing problems flowing from the doctrine having remained frozen: insensitive to transformational changes in institutional investor financial stakes and investor-specific policies and practices. These changes have increased the “decoupling” of economic and voting rights. Rigid application of the doctrine will miscount or disqualify institutional investor votes that are, in fact, aligned with the foundational premise, and will inadvertently shift power to individual investors and activist funds. We also show that the existing procedural architecture imposes informational burdens effectively impossible to meet in the public company context.

The Article proposes a reconceptualization of “disinterested stockholder” and offers a procedural architecture for implementing the new statutory definition. This substantive and procedural reconceptualization should help preserve properly-motivated institutional investor voices and make disinterested voting workable without legislative action. On the substantive side, we contemplate: (1) considering both an investor’s “financial stakes in host company shares” and its “organization voting dynamics” (such as the pole star an investor uses to guide its voting decisions); (2) moving from “disinterested stockholder” to “disinterested shares”; and (3) converting the doctrine to more of a default rule. Our analysis considers, e.g., the voting pole stars and previously-unexamined voting patterns of State Street Global Advisors and Vanguard.

ABOUT THE SPEAKER

Henry T. C. Hu holds the Allan Shivers Chair in the Law of Banking and Finance at the University of Texas Law School. Hu’s writings and public service relate to capital markets and corporate governance. The writings appeared in law reviews (e.g., Columbia Law Review, University of Pennsylvania Law Review, and Yale Law Journal), finance and specialist journals (e.g., Annual Review of Financial Economics and European Financial Management), and newspapers (e.g., FT, NYT, and WSJ). Six articles appeared in the annual “Top Ten” list of corporate/securities law articles (per peer polls). A 1993 article was the first to show how financial institutions could err as to complex derivatives. “HUI” is the ticker symbol for an index of gold mining company stocks, recognizing a 1995 article. Articles from 2006 to 2025 offered and refined the first systematic analysis of “decoupling,” a phenomenon disrupting the foundations of corporate and debt governance, and coined terms (e.g., “empty voter” and “empty creditor”) used worldwide. A 2018 article was the first to show the need for, or to offer, a regulatory framework for ETFs.

As for public service, Hu was the founding Director of the U.S. Securities and Exchange Commission’s Division of Economic and Risk Analysis (the first new Division in 37 years), has been chair of the Business Associations Section of the Association of American Law Schools, a member of the Legal Advisory Board of the NASD (now FINRA) and the NASDAQ Market Regulation Committee, and has previously been named one of the 100 most influential people in corporate governance by the National Association of Corporate Directors (the “Directorship 100”).

Hu teaches corporate law, modern finance and governance, and securities regulation, and has also taught them at Harvard. He holds a B.S. (Molecular Biophysics and Biochemistry), M.A. (Economics), and J.D., all from Yale.