Professor Henry T.C. Hu
Friday, April 20, 1:15 – 2:00 pm
“Decoupling” and Governance: “Empty Creditors,” “Empty Voters,” and Related Phenomena
Longstanding legal and economic theories of the public corporation assume that the elements of the package of economic, voting, and other rights associated with share ownership cannot be readily “decoupled.” Because of financial innovation and other factors, this no longer holds. For example, a person with the highest number of votes may actually have a negative economic interest in the corporation: this would be an extreme version of an “empty voter.” Similarly, “empty creditors” may arise on the debt side. Professor Hu offers an overview of decoupling and its impact on core mechanisms of governance.
Henry T. C. Hu holds the Allan Shivers Chair in the Law of Banking and Finance at the University of Texas Law School. Appointed by Securities and Exchange Commission Chairman Mary L. Schapiro, he was the inaugural Director of the Division of Risk, Strategy, and Financial Innovation, the first new Division in 37 years. From a research standpoint, he is best known for recent articles on “decoupling” and early articles on the systemic and other risks posed by derivatives. The recent articles offered the first systematic analysis of debt and equity “decoupling,” and coined terms that have come into worldwide use, such as “empty creditor” and “empty voter.” His 1993 “Yale Law Journal” article, which is receiving renewed attention in the wake of the global financial crisis, showed how cognitive bias, compensation structure, financial “science,” and other factors can cause major institutions to make mistakes as to derivatives. In 2010, the National Association of Corporate Directors named him as one of the 100 most influential people in corporate governance. He holds a B.S. (Molecular Biophysics & Biochemistry), M.A. (Economics), and J.D., all from Yale.