Disproportionate Influence: Rethinking Control in American Corporate Governance

Authors

• Dhruv Aggarwal
• Ofer Eldar

Publication Date

4-12-2026

Abstract

Corporate law has undergone a gradual transformation. Founding chief executive officers (“founder-CEOs”) and activist hedge funds increasingly dominate leading American corporations despite owning well short of a majority of shares. Founder-CEOs, through personal brands or dual-class voting structures, control firms despite having minority stakes; activist hedge funds, with single-digit holdings, press for major governance changes. We argue that these two types of shareholders, often treated as opposites, both dominate corporations through disproportionate influence rather than majority ownership. We describe these investors who dictate corporate policy through disproportionate influence as high-influence shareholders.

Delaware’s doctrinal response to high-influence shareholders has been inconsistent, generating market uncertainty. Courts have alternated between deferring to founder-CEOs under the business judgment rule and expanding the definition of control to impose “entire fairness” review. Likewise, courts have upheld poison pills against activist hedge funds to guard against creeping control, yet have struck down pills explicitly aimed at deterring activism.

To rationalize this area of law, we propose a disproportionate influence test as a doctrinal reform: whenever a board makes decisions under the influence of high-influence shareholders, courts should apply enhanced scrutiny. Likewise, when boards face the risk of disproportionate activist influence, they should be permitted to adopt defensive measures such as poison pills. Delaware’s expert judiciary is well positioned to articulate and refine the contours of disproportionate influence, while also designing cleansing procedures that boards can use to avoid heightened review.

Recent Delaware legislative amendments, aimed at enhancing predictability by narrowing the definition of control, have the effect of shielding board decisions shaped by influential but noncontrolling shareholders from meaningful review. We argue that simplified and predictable cleansing procedures can restore legal certainty, but that Delaware courts should retain a central role in evaluating when excessive shareholder influence on board decision-making warrants greater judicial scrutiny.

Recommended Citation

Dhruv Aggarwal and Ofer Eldar, Disproportionate Influence: Rethinking Control in American Corporate Governance, 120 Nw. U. L. Rev. 1573 (2026).
https://scholarlycommons.law.northwestern.edu/nulr/vol120/iss6/2