Walking quietly: Fiduciary waivers and blockholder exit

Abstract

Corporate opportunity waivers let directors pursue outside ventures, weakening the duty of loyalty that supports investor confidence. Exploiting staggered state adoptions of these statutes from 2000 to 2018, we examine how blockholders, the market’s main bulwark against self-dealing, react. Public governance signals barely change; support for management proposals slips by less than one percentage point, failed director elections fall, and friendly hedge fund activism fades. Once scrutiny shifts toward the potential outcomes of private monitoring, a strikingly different picture emerges, as larger firms experience more frequent departures of independent directors, activists who once cooperated with management adopt confrontational tactics, and long-horizon investors pare their stakes, especially where diversion prospects are very high, analyst coverage is extensive, and boards are larger. Loosening fiduciary standards, therefore, gradually weakens shareholder oversight, eroding a critical governance mechanism and placing long-term firm value at risk, despite initial market optimism.