Private Ordering

Summary

Shareholder Primacy — Episode: Private Ordering (June 24, 2026)

Podcast: Shareholder Primacy
Hosts: Mike Levin (activist investor), Ann Lipton (Professor, Colorado Law)
Theme: A deep dive into the concept of private ordering in corporate governance and securities law—what it means, how it works (or doesn’t), its limitations, and its practical implications.

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Episode Overview

This episode explores the concept of "private ordering"—a foundational but contested idea in corporate law and governance. Mike and Ann unpack what private ordering means, debate how much freedom companies and shareholders actually have to set their own rules, and discuss whether and where the law should step in. Their conversation traverses everything from mandatory disclosures to shareholder proposals and institutional constraints, questioning the line between private agreement and regulatory control.

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Key Discussion Points & Insights

1. Defining Private Ordering

[03:02–05:21]

• Ann kicks off: What does private ordering connote to you?
• Ann & Ann's definition:
  • Parties set their own economic arrangements (contracts, agreements) with minimal prior government regulation, except for the government enforcing what’s agreed.
• Ann summarizes skepticism:
  • Even “private” arrangements ultimately depend on the state to enforce them.
  • “There’s never a situation where it’s totally hands off.” [04:00]
  • The legal field always debates how much should be left to parties versus imposed by regulation.

2. The Rationale and Limits of Private Ordering

[05:21–06:24]

• The law’s general starting point: encourage private ordering (“liberty, markets know better than governments, all kinds of justifications”) but curtail it when there are:
  • Externalities – When private contracts negatively (or positively) impact third parties.
  • Paternalism – To protect parties who may not bargain effectively (e.g., due to information asymmetry).

Notable quote:
Ann: “We should allow people to make…their own arrangements. And then when you don’t… it’s usually either because externalities [are present] or for paternalistic reasons.” [06:23]

3. Private Ordering in Practice: Corporate and Securities Examples

[07:15–12:05]

• Reporting frequency:
  • Debate over new rules allowing semi-annual reporting vs. continued quarterly (or even more frequent, as in Walmart’s case). Are these regulatory mandates or privately-ordered behaviors?
• Precatory Proposals:
  • If regulations were relaxed, would companies still permit advisory shareholder proposals? Would market/peer pressure alone suffice?
• Real-world extension: Same debates appear in areas like business licensing and AI regulation.

4. Distinguishing Private Ordering from Self-Regulation

[11:07–14:11]

• Ann & Mike: Many “self-regulatory organizations” (e.g., NASDAQ, NYSE, FINRA) operate under the thumb of government agencies like the SEC.
  • Self-regulation often exists “in the shadow of government regulation.”
  • It can be a way to stave off stricter government rules.
• “There’s no such thing as completely private.” — Ann [13:28]

5. The Continuum of Private Ordering

[14:11–18:12]

• Private ordering is not all-or-nothing—there are zones of total legal specificity (e.g., universal proxy rules) and others with broad flexibility (e.g., written consent for Delaware corporations).
• Ann identifies a continuum:
  • Some spaces are tightly prescribed by law, others are wide open.

6. Power Dynamics & Bargaining Problems

[19:02–22:46]

• Mike: True private ordering assumes both parties (company/board and shareholders) have real bargaining power—often not the case.
• Shareholder “rational apathy”: Even if they have the power, shareholders may not act (cost, coordination, incentives).
• In corporations, shareholders can’t initiate charter changes—structural limits to bargaining.
• LLCs provide more contractual flexibility, but again, within legal boundaries.

Notable quote:
Ann: “The general assumption legally is we start with private ordering is good and you have to have a reason to depart from it. … But whether that is an accurate description of what happens when dispersed investors buy into a company is sort of the opening question.” [19:53]

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7. Shareholder Preferences: Data from Precatatory Proposals

[24:14–31:12]

• Mike summarizes data:
  • Shareholders frequently support governance reforms (e.g., 25%+ for splitting Chair/CEO, 60%+ to abolish supermajority voting).
  • If left to private ordering, many boards might not want to accede to these reforms.
• Ann’s skepticism:
  • Even if investors “choose” companies with poor governance, it's often not a real choice—pricing governance risk is essentially impossible.

Notable quote:
Ann: “First of all, nobody knows how to price the fact that there’s a controlling shareholder. … The choice of buying into something at a price counts as privately ordering the arrangement? I’m not convinced.” [28:53–29:29]

8. Role and Nature of Institutional Investors

• Institutions (e.g., BlackRock, Vanguard) are not individuals—they’re legal constructs, often facing their own legal/political constraints (e.g., ESG rules).
• Impossibility of a “purely” private bargaining space (“turtles all the way down”). [30:01]

9. Private Ordering and Market Externalities

[33:11–34:44]

• Reporting frequency debate:
  • The standardized, frequent reporting mandated by government is more efficient and beneficial for the market broadly (positive externality).
  • “If you don’t have a mandatory system, then investors have to waste a lot of… it’s inefficient because each investor is trying to dig out their own information.” — Ann [33:11]
• Standardization helps capital allocation and market comparability.

10. Arbitration, Litigation, and Enforcement

[35:05–37:16]

• Mike and Ann: The ability to enforce contracts (including rights to sue or arbitrate) can’t easily be left to private ordering—there are information asymmetries and public interests at stake.
• Most even libertarian theorists want robust anti-fraud tools.
• Private ordering always relies on a public enforcement backdrop.

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Notable Quotes & Memorable Moments

• Ann (skeptical of pure private ordering):
  “I question the premise since we’re talking about institutional investors that are themselves constructions of law… there’s no point at which this is just a pure private bargaining space.” [38:16]
• Ann (summarizing practical constraint):
  “You could privately order as much as you want, but… once it goes the wrong way for you, you’re going to wish it didn’t.” [39:03]
• Mike (on shareholder preferences):
  “If we know, based on that, that investors continually say, ‘I want more voting rights, I want more power…’ If investors consistently want that, why isn’t that being delivered by the market?” [39:42]
• Ann:
  “If they don’t have the power, that is exactly the situation where paternalism should step in. You can’t trust what the market is producing.” [40:37]

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Key Timestamps for Important Segments

• Defining Private Ordering: [03:02–05:21]
• Limits and Rationale: [05:21–06:24]
• Examples (Reporting, Proposals, Licensing): [07:15–12:05]
• Self-Regulation vs. Private Ordering: [11:07–14:11]
• Continuum of Private Ordering: [14:11–18:12]
• Bargaining Power Problems: [19:02–22:46]
• Shareholder Proposal Data: [24:14–31:12]
• Institutional Constraints: [31:12–33:11]
• Reporting Frequency Debate: [33:11–34:44]
• Litigation & Enforcement: [35:05–37:16]
• Philosophical Wrap-Up: [38:00–40:45]

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Concluding Thoughts

• Ann maintains skepticism about the “purity” of private ordering: legal, institutional, and enforcement mechanisms underpin all contracts.
• Mike notes that theoretical support for private ordering often breaks down in practice, as actual shareholder power to bargain is limited—and empirical data show shareholders consistently want more power than company boards grant.
• The hosts agree: while private ordering sounds ideal in theory, practical and structural realities mean regulation inevitably shapes outcomes—especially where power and incentives are mismatched.

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Transcript

[A]

Welcome to Shareholder Primacy from Free Float Media, a podcast about activist investing, securities law, and all the ways the financial and legal worlds intersect and collide in real life. So Ann and I have returned. Ann Lipton is a law professor at the University of Colorado who teaches and researches securities and business law. She holds up the legal end of the podcast.

[B]

And that's Mike Levin, an activist investor who lives and works in Chicago. He covers the financial side of our podcast.

[A]

How you doing? How's it going?

[B]

It's fine. How are you?

[C]

Good.

[A]

I haven't talked to you all week. So all we do is. All we do is email ideas about what to talk about, email stuff.

[B]

And we text. We also text.

[A]

And we text it, too. That's fine. Oh, good. So I have been thinking a lot lately, and I hope you have to. I think you have. About private ordering.

[B]

That's pretty much all I do. Yes.

[A]

That's. That. That. That's your life, Oak. I'm sorry I suggested it then, like, what it means. It comes up all over the place. I wrote a piece the other day or a couple weeks ago about everything is private ordering kind of in the same, you know, after the fashion that our old friend Matt Levine does, about everything is securities fraud and everything kind of is private ordering, isn't it? It just sits everywhere.

[B]

Well, it's certainly in the corporate and security space. Yeah.

[A]

Yes, correct. So we thought we would spend some time talking about private ordering today and sort of see how it affects us and so forth. Before we get there, a quick word about our posting schedule for podcasts. We will be away next week leading into the Independence Day holiday, and then we will be back only occasionally through the end of July and into August. Probably we'll get one or two done in between our travels and breaks and so forth. So there'll be a couple more, two, three in the next several weeks. So if. And you just gotta, you know, keep checking your. Your podcast feed to. To hear from us. But we're. We're gonna be taking a bit of a occasional break here over the summer. At least I am. Ann, I don't know what you're working on.

[B]

Well, I've got other stuff, but yeah, so, yeah, we'll take a little bit of a. Intermittent posting schedule and then resume normal stuff.

[A]

Normal activity. Yeah. Probably just before Labor Day. We'll. We'll think of something. And we have an exciting one cooked up for July where we're planning on doing another crossover with. With Matt and Damien from Free Float, but that'll be in A couple weeks. So, so stay. So stay tuned for that, everybody.

[B]

Yes. So that'll be fun. And also a reminder, we do take emails. You can email us at ShareholderPRIM, Free Float LLC. We will respond or talk about your email eventually. We don't always get to it right away, especially because our posting schedule is going to be off for a bit. But we really appreciate getting that feedback and we will respond when we can.

[A]

We'll read. We'll read some questions on the air, even so. Anyway. All right, let's go. Let's go to the meat of the matter. Let's go talk about private ordering. So I have a couple ideas, but what does private ordering connote? What is it when you think about private ordering, what does it, what does it kind of mean in a sense, just to sort of set the scene here?

[B]

Well, something like government enforcing private, privately arranged, you know, economic arrangements, private contracts, private economic arrangements that aren't really regulated by the government other than to enforce what the private parties have agreed to. That's generally how I.

[A]

Okay, so. So in other words, there's no regulation about what two parties or groups of parties might agree to. Are you, is it sensible to distinguish regulation from law or do you kind of mean.

[B]

I don't distinguish regulation from law? And in fact, this is why I tend to, you know, I, I tend to be very skeptical of even the concept of private ordering because even the way I put it was the government has to enforce it. Like, you know, like, this is not. Like, we don't then if somebody breaches their contract, we don't let them go out with a club and beat the other person to death at the other. At the end of the day, there are still gonna be legal remedies for what the privately ordered arrangements were if they're breached. And so at the end of the day, there's no getting away from that government hand in the end. And then the government has to decide what it will enforce and how it will enforce and when it's too late to sue. So there's never a situation where it's totally hands off. Nonetheless, the theory of private ordering is we will not have, you know, advanced regulation. We'll just let people make their own market arrangements.

[A]

Arrangements could be in the form of contracts. It could be agreements or whatever. But there's. That's actually not as far from what I was thinking about it as well.

[B]

I mean. Yeah, yeah. I mean, and in the corporate security space, it's sort of the ongoing, endless questions about what you should leave to the private Parties to arrange for themselves versus what should be sort of the government standard and a government, you know, in advance standard. And what the best set of arrangements are is sort of the through line of most of this field.

[A]

Got it. All right. And again, it was fairly close to what I had, you know, and again, the free market economist in me likes the idea of parties being able to exercise agency, you know, demonstrate free will or whatever, subject to some limits. You know, there's. There's some assumptions about, you know, related information asymmetry or related to what, you know, someone's capacity to agree to this kind of stuff involved. We'll talk about that.

[B]

Yeah, I mean, I. Yeah, I could say that like on a high theoretical level, sort of the law tends to approach that with sort of the default being. We like it when people make their own private arrangements. We should allow people to make that. You know, it appeals to, you know, that's liberty. That's markets know better than governments. All kinds of justifications where you should start from the position of people can make their own arrangements. And then when you don't allow that or when you regulate, it's usually either because externalities there.

[A]

It's not just private between them.

[B]

Right. It's not just private between them. It'll affect other people so that like if there's something about the contract that will end up harming third parties, that's when government will step in. And then the other would be paternalism. But that doesn't mean, like there's a re. But that by itself does not mean that's bad or good. But having a reason to think somebody needs to be protected because they can't bargain fully in their own interests. Like as you say, informational asymmetry.

[A]

Right. Well, and the reason this kind of came up, at least for me, I was gonna say it comes up for you every day, so several times a day. The reason I started thinking about it was because of. And we'll talk about this a little later in, in our recording here, I started thinking about the new. Or the proposal to allow companies to report semi annually rather than quarterly.

[B]

Right.

[A]

And it seems to me that that's a fairly emblematic illustration of what's possible in private ordering because there's a, you know, some talk that, you know, whether companies would in fact only report semi annually and just strictly comply with the law, or whether there'd be some sort of pressure, some sort of agreement to continue to reply, to continue to report quarterly or, you know, and there's companies that report more often than quarterly Walmart and a lot of retailers have monthly reports of different results and there's nothing in the law that compels that. So that was one of the things that got me kind of thinking about that. And the other one had to do with all the controversy around precatory proposals lately and whether regulation, you know, 14A8 is going to persist and whether companies would continue to allow these even if there were no government, no requirement in, in code or in, in reg. In regulation to have them. And those, those, at least those two and many others. There's all sorts of other corporate governance controversies that we talk and we will talk about seem to me to illustrate, start to illustrate what's possible here. What's possible, you know, the dimensions of private, private ordering. So I thought it would be kind of fun to, to kind of look at them in this, in this context.

[B]

Okay, sure.

[A]

And, and so, and you know, I wrote, you know, and knowing a lot less then than I know today, like at least 10 years ago, I wrote a couple blog posts about this about what, you know, sort of a very rudimentary definition of private ordering and how, how it might actually really look. So I'm planning. So maybe we'll return to a little bit of that data in a minute. I think it's worth noting that while we're talking about this in the sort of the securities law and corporate governance and the activism space, and it's not confined. I mean, private ordering can apply to almost anything. Is that kind of.

[B]

Well, I mean, yeah, it comes up in a lot of. It comes up. It's a constant question like, you know, just for freedom of contract and various other kinds of situations, contracts to arbitrate or contracts to sell your organs or employment contracts like these are all kinds of places where, you know, the debates are how much freedom should we allow people to just make their own private arrangements or how much should we say no, you can't sell your kidney or no, you can't work for less than me, minimum wage.

[A]

Right. And the, the examples I've always thought about outside of securities law, corporate government has to do with like business regulation, business licensing. Where is there is, you know, will parties be able to kind of find qualified, you know, suppliers of things without a licensing.

[B]

Well, right. And that's. Yeah, and that's a classic situation where. Yeah, it's, it's both. You have a paternalist angle. I mean, depending on the licensing, you have both a paternalist justification and an externality justification. So sometimes licensing might be a way people to know this person is qualified to do the job. And sometimes the licensing regime is this person is qualified to do the job without polluting the environment or, you know, some other externality that like we're trying to address.

[A]

Oh good. That was a neat, neat way to kind of summarize it. And then more recently or even like today, I suppose, all the ideas and proposals to regulate AI start to fall a little bit into the realm of, of whether private ordering makes sense. I, I guess that, that I, I could imagine, you know, a completely free market environment. Again, you get to all sorts of really interesting externalities. And you know, I mean like one

[B]

of the basics is like use AI to determine a credit score or to determine who's likely to commit a crime after being paroled. And you might say something like, well, like the parties can just decide to use this tool. But what if the tool produces BIA racist results? Then that's an externality issue.

[A]

Right. And now I want to distinguish here because this is a very specific attribute of securities law, private ordering, from like self regulation. I think, I think that's a sensible distinction because there, there might be and I've, I've seen at least some accounts where. Oh no, no, the securities industry already has a, you know, significant amount of private. Because there's a lot of self. Right. You know, from FINRA and so forth, there's all these different regulatory bodies that kind of oversee various aspects of conduct. But that's not quite the same.

[B]

Well, I mean.

[A]

Right.

[B]

Yeah, it sort of is in the sense that, you know, like private parties might decide things. Like it's complicated. It's. We can ensure greater trust in our industry if we agree on a set of principles as to how to conduct business. And that is good. And you could think of that as just good business like is in customers know that brokers are all subject to a certain degree standard. They're all, you know, and therefore they know to trust their broker. Otherwise they would spend a lot of time trying to figure out which broker are the honest brokers and they wouldn't go to all the brokers. So that's one way of thinking about it. But another way of thinking about it is that that self regulation is really their way of staving off actual government regulation, which makes it private ordering in the shadow of government regulation. And a lot of these privately ordered groups like securities industry, like nasdaq, like New York St Exchange, they call them like self regulatory organizations, but they're actually really heavily overseen by regulatory bodies. So New York Stock Exchange can't make Rule changes all by itself. They have to the sec.

[A]

A lot of stuff goes through the sec. Exactly. So. So, so here we may be making a little bit of a distinction between the law and the regulation that kind of implements the law.

[B]

Well, I, in a sense, I don't distinguish. I mean, it's all law.

[A]

I know you said that before, but

[B]

I also tend to believe that there's no such thing as completely private. So there we go.

[A]

Oh, that's fair enough. Yeah. But the externalities are so pervasive and so forth. All right, so. So I wanted to kind of mention that, that there's, you know, an aspect of private ordering that sometimes could be thought of as just we'll regulate ourselves. But you. All you're doing is interpreting, implementing, enforcing laws, but not using like a government agency.

[B]

Yeah, not using a government. And you could be doing that for like completely market reasons. Like everybody will have more faith in brokers if they know that we're all working together to come up with a set of standards. But a lot of the time it's also this way we, you know, avoid even more regulation from the government.

[A]

Right. All right. I want to make two more points about this, then maybe we can take a quick break. Is first, it strikes me that private ordering is not strictly black and white either, or that there's. It sort of exists sort of along a continuum that you can have some areas which are completely and very prescript. Prescriptively set out that you. There's almost no latitude and there's just no private ordering possible. It's just the law is very specific. And then at the other extreme, you could have some areas that are just where the law is completely silent. There's just no, you know, everything is left up to private ordering there. So there's this sort of continuum of. Of possibilities in between. So like an example of something that I think of that's very prescriptive these days is what goes on with universal proxy. The law and the regulation there is very specific and there's very little really private ordering, you know, bargaining and so forth among parties about how to. How to run proxy contests there with it, within the law and regulation of universal proxy, you know, how you display people, what the SEC was very specific there. And then at the other extreme, where everything is up to private ordering, I think a good example of that might be how I think it's written consent solicitations work in at least Delaware corporations, that the law there is completely silent about whether to require it or not. And if a company wants to allow written consent solicitations for, you know, shareholders act by written consent. It, it can, it does not require to. And I, I think the law is actually pretty, pretty, you know, including cases. There's not a lot of cases about this. So that is an area that is completely up to the parties to decide.

[B]

Well, yeah, but I mean this is why I'm just, I'm skeptical of the concept of complete private order because. Well, first of all, universal proxy, like the argument is. Well, yes, once you're in a situation where there's a proxy system.

[A]

Yeah.

[B]

Universal proxy is now the SEC rule because proxy solicitations are heavily regulated.

[A]

Right, exactly.

[B]

But you don't have, you can go public with non voting shares and never ever have to deal with proxies.

[A]

Absolutely. But once you have public voting shares. Right, yeah.

[B]

Okay, right. But this is my point that like you're right, I agree with you, it's a continuum. But I mean in any given situation, especially in corporate securities law, we would say but at some point somebody opted, made a choice as to whether they wanted to be part of this system or not. So you're only in the universal proxy system once you've set up a, set a situation where you have shares with voting rights such that, you know, and you don't have to.

[A]

Right.

[B]

So that, and the thing about written consents is you call that private in the sense that the company can do what they want. But I'm like, it's private. And so the company can choose whether or not to allow written consents or not. And usually they'll do that if they have a controlling shareholder and they know that exactly what the consensus look like. But to call that usually private ordering is viewed as a sort of market contractual choice. And I question the investor side.

[A]

Yeah, you're getting my next point in a second. But so like one of the outcomes here in the written consent area is that very few companies allow shareholders, relatively few allow shareholders to act by written consent to through consent solicitations.

[B]

They usually will do it only if they have a controlling shareholder so that they don't have to have a shareholder meeting just because the controlling shareholder wants to do something.

[A]

Yes, exactly. And then the terms of written consent, you know, are then also left up to the company. But again, everything sort of, you know, what I'm thinking is that there's a lot of the areas that we're going to talk about, or we could talk about it, we'll talk about that kind of fall along this continuum. So it's degrees of private ordering, not whether or not something is completely privately ordered or. Or not. All right, but then you, you raised this great point that I'm, I'm really interested in, in at least identifying here, which is how private ordering actually works is, is sort of like there's a negotiation, there's a bargaining that goes on.

[B]

Right. Yeah. I mean, the usual reason. Yeah. That you assume that like, we make this a default, we should allow it. And is the assumption that this is what parties arranged privately, but what happens when it's imposed by one and not really chosen by the other.

[A]

Right, exactly. So. So. And the imposer here is almost always going to be the company, the board. Right, okay. And the shareholders are the ones who've kind of got to accept. And I can think of, you know, part of the problem is that. So anyway, private ordering, a good, a. Well, a well ordered private or privately ordered resolution to some subject I said, basically assumes that the shareholders have at least some degree or an appropriate degree of bargaining power and that they choose to exercise it. And those are big open questions.

[B]

Well, that's, that's why, I mean, you know, as I said before, like, the general assumption legally is we start with private ordering is good and you have to have a reason to depart from it.

[A]

Right.

[B]

But the reason it's good is because the expectation that the parties entered into an arrangement that they sort of decided was the best for themselves. And whether that is an accurate description of what happens when dispersed investors buy into a company is sort of the opening question.

[A]

Right, exactly. So. So a very well dispersed, or I'd call well diversified, whatever shareholder base, probably, you know, the coordination problems there are, are hard to try to, you know, bargain for. Like an improved written consent. I'm making that up as an example or something else. Go ahead.

[B]

No, and then, and then the other

[A]

point I'm going to make is that whether or not shareholders have the power to bargain to resolve some corporate governance question using private ordering or that way also needs to consider whether shareholders in fact want to, which runs us right into the problem of rational apathy that there may not be incentives for shareholders to get together. You know, we've talked about this before about how this works. So whether or not they in fact have the authority and power to bargain here, they may. It may not be in their interest economically to spend the time on it. So.

[B]

Right. So there are a couple things. So this is the kind of thing where the dispersed investors who find it difficult to coordinate and difficult to bargain because they are dispersed and they are, you know, and they each have a small stake is exactly the kind of situation where you might say a more paternalistic regulatory environment is required to deal with. This is a situation where one party can't quite bargain for itself. And the other thing that I'll say about what's not private ordering, even about written consent situations, is the corporate form does not allow shareholders to do certain things no matter what they want to do. So, for example, once you put in the charter, like, you know, you're the founding company, you start a company, you start the corporation, you put in the charter. Something about written consent. Written consent, not allowed. There is no way legally that shareholders can change that because the law is that shareholders cannot initiate charter.

[A]

Charter change, charter.

[B]

That is a regulatory choice. So you could say, well, that's not. Then it's not private ordering in the sense that shareholders have no ability to change it. But you could say, but then the other side would say, well, shareholders can choose not to invest. Can they really? And then the other side would say, well, yes, but also, you don't have to. It doesn't have to be a corporation. What if it's an llc? Then you can come up with any

[A]

arrangement you want, put in the operating agreement.

[B]

So whether or not this is a privately ordered choice versus a regulatory choice by government, like shareholders cannot initiate charter changes is very much a question of at what point in time you look at the problem.

[A]

Yeah. All right. So I think we've set some interesting and appropriate groundwork to discuss some of the practical implications about what this looks like. You know, and look at, I think there's a little bit of data available about how private rendering would actually look. And we can do that, but we'll do that after a quick break here at Shareholder Primacy.

[C]

Shareholder Primacy is brought to you by free flow analytics.com the only free database of corporate directors, their influence and their performance. If you own a stock or retirement plan, go to free flow analytics.com and look up which of your elected directors are performing well and which aren't. Use your vote in the alternative democracy and get your data @free float analytics.com now back to the show.

[B]

Welcome back to Shareholder Primacy. I'm Ann Lipton here with Mike Levin, and we're talking about private ordering and what would happen if companies and shareholders relied more on private ordering? And I'll add, if they were allowed to, because again, shareholders may not change the charter without director first proposing and so forth. But what would happen in a world where there was more flexibility about that?

[A]

Yeah. So I, I looked at this a long time ago when I started thinking about private ordering and then refreshed some of the. There's, there's, there's. If you want to look at it the right way, there's actually some data that would be possible here. And I, and I was wondering, okay, let's look at like all the precatory proposals and governance and sort of use that as, as a bit of a signpost about how private ordering might actually kind of look. And I'm, I'm coming to the conclusion that, you know, as much as I would expect companies would love to see forms of private ordering, they'd like to get out of the, you know, required to carry precatory proposals. There's probably some companies that would love to do semiannual reporting. To use the two examples we kind of started with. There's a bunch of areas where if they were to let shareholders kind of decide or were to bargain with shareholders about how this work, they may not get to a place where they'd really want to be. So if you just look at how shareholders sort of express preferences, again, governance proposals, this is in the last couple years and there's, and now we're starting to see, you know, reports and analyses of kind of what the 2026 proxy season has brought us. There were a lot more, somewhat more predatory proposals on governance than there were in 2025, which is a stark contrast to ENS proposals where there's down by like half this year, at least according to some of the early, early reports. Reports. And the average support for these proposals is, goes, runs from decent to really, really good. So like there were a few dozen proposals to separate board chair and CEO, which again, that's a huge problem for a lot of boards. They want the flexibility and if, if we were to bargain on that, what that looks like, well, they, the average support for these is like 25% which doesn't sound like a lot.

[B]

That's a lot.

[A]

But that's, that's a lot of this. Yeah, exactly. And then there's, you know, this runs all the way to proposals to basically get rid of super majority voting standards for us for, you know, anything a shareholders vote on. You know, there's, it runs up to like as much as 80% are of shares are needed to approve certain kind of charter amendments and so forth. And so there's, and this is a big John Chavettin, right proposal. He's submitted, you know, many dozens of these to basically just say let's get only to majority voting. In majority voting standards. And the average level of support for these is like 60%. So if, if the company were to say, okay, we're just going to do what shareholders kind of want here, which, again, is not strictly what we mean, but there'd be a significant sentiment to change around a lot of the corporate governance arrangements that, that companies have gotten used to. And this. And we talked about majority votes, Sienna. We talked about separating board chair and CEO, but there's others. There's, you know, support for declassifying boards, support for. We talked about written consent to start allowing that and to allow special meetings. There's certain takeover defenses. So there's. There's a whole lot of areas where shareholders are becoming, you know, they're pretty aware, at least the institutions are. And I think. And they're. And they're willing to, at least in this context, express a preference for stronger protections for themselves.

[B]

Stronger. Stronger shareholder power.

[A]

Yes, exactly. And, and if that, if we, if we kind of use that as, as I said, a signpost to trying to understand what might happen if we were to privately order corporate governance arrangements, I'm not sure companies would be all that interested. Interested, I mean, trying to pursue that.

[B]

But the thing is that they'd say that they. I mean, it's just so complicated. They would say that they are privately ordered. You didn't have to invest in us. You invested in a corporation. You understood that this was the right legal setup when you chose to invest, and that, and maybe that meant that you paid a little bit less for the shares, but that's okay. You priced it, and therefore it was privately ordered.

[A]

Oh.

[B]

But I would say. Yeah, this doesn't look anything. I would say, first of all, nobody knows how to price the fact that there's a controlling shareholder.

[A]

The governance. Right.

[C]

Yeah.

[A]

Governance mechanisms are notoriously hard to.

[B]

It's very hard to price because you have to predict what effects they have on future board behavior. And so that's the first problem with calling that private. The other reason, I'm not convinced that, you know, a choice of buying into something at a price counts as privately ordering the arrangement.

[A]

That's fine.

[B]

And the other aspect, though, which we haven't talked about, is the investors. As you said, they're institutional, and institutional investors are not people. They're created by law.

[A]

Oh, sure, right.

[B]

They're subject to legal restrictions on what they can do. The Trump administration right now is being very, you know, sort of proposing and threatening all kinds of limits on ability to take esg, and that includes governance into account when Institutional investors making investments.

[A]

Yeah, yeah.

[B]

So it's turtles all the way down. Like, there's no point at which this is just a pure private bargain bargaining space.

[A]

Right. So, yes, that's. And I, and I'm, I'm glad we brought that up here because you're right that there's, there's going to be some enforcement mechanism essentially that has to enter into this at some point, you know, whether it's the SEC or Delaware Chancellor Court or Delaware Chancery Court or something like that. But you're right, you can't escape it. You know, government presence here at various points. Points. So, so, so that's kind of the. This, this. Go ahead.

[B]

Yeah, but no, but as you say, you're right. Like, but at the end of the day, what the shareholders, at least what they seem to be voting for, what they request is much more governance power than a lot of companies provide. But at the same time, you know, like, even though BlackRock, Vanguard, all of them will put out statements that say they're not crazy about dual class, they want shareholders to have more rights. That does not stop them from putting billions of dollars into controlled companies, which,

[A]

so, yeah, but then there's other, there's other reasons, unfortunately. You know, it'd be BlackRock's, you know, they, they put in an order for $5 billion worth of SpaceX. And you know, and it wasn't because they were, and they overlooked the governance flaws. But, you know, for them, the pressure to include that in portfolios overcame that and they may regret it. I don't know. SpaceX, I don't know if you saw it as we're recording this today on a Tuesday, SpaceX is now trading below its IPO launch price.

[B]

Well, yeah, below the opening price. It is, you know how long that'll last. I mean, it's such a tiny float. It's going to be extremely volatile for quite some time.

[A]

Oh, damn. We talked about SpaceX. We weren't going to do that. All right, anyway, let's apply what we've talked about to a couple of other kind of current controversies, then we can wrap this up a little bit. So we've talked a little bit in the context of financial reporting. It seems to me that there. That we're right that finance that whether someone reports quarterly or annually or semiannually or monthly or whatever frequency is, it does illustrate what's possible with private ordering. And part of the problem is that we get to. The problem with bargaining power is that, you know, this, this may be an area that shareholders, you Know, really, really would want something, you know, to a company to stay with quarterly reporting rather than move to semi annual. But I'm not sure how they would, whether they'd successfully express that if a company really wanted to, you know, go to semiannual. And I don't want, I mean for the record, I'm, I'm a fan of, I'm a fan of, you know, more data the better. So I, you know, I like weekly, I want continuous reporting. But I, it seems to me that, that letting companies and shareholders kind of privately order financial reporting might be a mistake.

[B]

Right. Well, I mean this is, this has been a debate in the securities laws since we've had mandatory reporting. I mean, notice that the choices here are semiannual and quarter. That's not like exactly a private space, like you're still required. But there's been a debate since 1933 and 1934 as to why we require reporting at all. And it, a lot of it has to, as opposed to just let, if you don't like it, don't invest. And a lot of the arguments have to do with the fact that investors are dispersed. If you don't have a mandatory system, then investors have to waste a lot of like it's inefficient because each investor is trying to dig out their own information, their duplicate their doing duplicative efforts. And so it creates a better, smoother system. If we just have standardized reporting, and this is a coordination issue with the government that if it requires standardized reporting, then that means everybody knows all the reports are comparable. Everybody's getting the same information about company after company after company, which makes it easy for an investor to compare across companies, makes it easier to value companies because you have more data that you can use that is all in the same format, disclosing the same format.

[A]

Right. We have more information about what's going on in the economy, basically.

[B]

Yeah. And that's very difficult to do on a one on one company by company negotiation.

[A]

Right. So setting aside whether or not that negotiation would succeed or fail because of the lack of bargaining power, there's just benefits to having. So maybe that's the external. Yeah, that's the extra. Oh, the externality.

[B]

That's the reality issue. There are positive externalities to having regular reporting that go beyond what any one investor puts into any one company that it gives you a picture of the environment, of the economic environment. It creates data that is used for the capital asset pricing model so that you can value other companies and so forth.

[A]

That was very well put all right, let's bring up one other example that we haven't quite talked about, which would have to do with litigation and like, forum selection and whether people can sue or whether they have to arbitrate. It seems to me that this too is possibly not something that we should leave to private ordering. But I don't know, I thought I'd bring it up and sort of see how you react.

[B]

Well, I don't think that it should be left to private ordering.

[A]

Okay, Right, okay. But the reasoning would be going back to externalities and probably more information asymmetry here, too.

[B]

It's both. So it's a degree of information asymmetry. I think that, that. Well, part of the issue here is that even those who want near complete private ordering with mandatory reporting would want very strong fraud enforcement possibilities. Because that's like the bear. Like. Because the theory is something like companies will know that investors won't invest unless they disclose sufficient information. Now, that is always a problem. Like, that theory also ignores that management themselves get a lot of private benefits by not disclosing information. So they won't ever fully volunteer, no matter how much investors want it. All information. No matter how much investors want it, because they can insider trade if they don't disclose information. All kinds of things like that. But even the most extreme private ordering fans usually want very strong protections. Fraud enforcement. Because if you're not requiring companies to disclose information, then the only way this works is if investors can sort of say, well, I'm not investing unless you give me information. And then you have to be sure that that information is truthful. So if companies can sort of undermine the fraud enforcement, then then, you know, the system can't work properly.

[A]

So, so, so, so this gets to the point we made earlier about how you can privately order as much as you want, all in all, many, many areas. But there has to be some sort of an enforcement mechanism. And by talking about my bringing up litigation as an example, privately ordering that enforcement mechanism is probably a really bad idea.

[B]

Well, I think it is. I mean, and then we can also talk about, aside from the fact that without the enforcement mechanism, the private ordering itself falls apart, there's also, once again, we can talk about externalities. The whole purpose of the markets isn't there so that individual investors can make money. It's there so that we allocate capital appropriately throughout the economy so that we get the iPhone, because people are. Because investors are putting their money in the right place. So those are the kinds of externalities that we're trying to Protect when we mandate reporting, when we mandate, when we have penalties for fraud. It's not just so that investors won't lose money. It's so that capital will flow to where it can be most valuable, societally speaking.

[A]

All right, so I think I know the answer to this question, but it sounds like I was going to ask what do you think of private ordering, But I think I kind of know is that it's, it needs to be limited in your view.

[B]

It's just that I question the premise since we're talking about institutional investors that are themselves constructions of law. There is that corporate form, which is itself a construction of law, that you can't have a contract that isn't going to get enforced at some point. And the bare minimum for any contract that you can never opt out is the duty of good faith and fair dealing, which gets interpreted by a court. Like, I'm really always questioning that. Like, I think that the concept of private ordering just sort of obscures how much one way or another, there is public power standing behind all of this.

[A]

Oh, oh, interesting. Okay. So you could privately order as much as you want, but until you know once it goes, once it goes the wrong way for you, you're going to wish it didn't.

[B]

Yeah, well, you're papering over all the places that the government and public power is sort of pervasive.

[A]

Right, okay, well, interesting. All right. And now I think my thinking has evolved even in these last 30, 40 minutes. Again, go ahead.

[B]

But, oh, but on the narrow issue, certainly investors, you know, if you treat them, you know, have expressed much more preferences for more power within the corporate form. And the question is, why isn't that being delayed delivered?

[A]

Right. Well, there's broader institutional questions that go way beyond private ordering about why. Why that's the case. So.

[B]

Well, I mean, but, but I think you raised the right question. Like what? Like if we know, like based on that, that investors continually say, I want more voting rights, I want more power. I, I don't want a super majority voting standard. I want to be able to act this, you know, I want votes on poison pills if they last more than a year.

[A]

Yeah, right.

[B]

Yeah. Whatever it is like if we, if investors consistently want that, why isn't that being delivered by the market? They're not getting it. In fact, companies are more and more going public with dual class share structures, and that's sort of the puzzle. Is it because investors revealed preferences, in fact, they don't really want those things very much, or is there some other problem?

[A]

And the problem could get to. In my estimation, the problem with shareholder bargaining is that they're either don't have the power to, which is, again, that's a different premise that goes under.

[B]

Well, that's exactly.

[A]

Yeah. They don't have the power. They choose not to exercise it.

[B]

Well, if they don't have the power, that is exactly the situation where paternalism should step in. You can't trust what the market is producing. Right.

[A]

And I'm always curious about the rational apathy angle, about whether they're fully informed and they just, it's just not worth their time to privately order, to bargain, to privately order some, you know, narrower aspect of their investment that has to do with a, you know, element of corporate governance. So I don't know. All right, this is, this is kind of fun. And it's everywhere. Again, everything is private ordering, so I'll have to, have to keep looking for examples. Right. All right, let's wrap up. How's that? This is Shareholder Primacy, hosted by Ann Lipton and me, Mike Levin. I'm an independent activist investor and advisor to investors about their activist situation and is, as always, professor of law and The Lawrence W. DeMuth Chair of Business Law at the University of Colorado Law School. You can find me, Mike, at theactivistinvestor.com and you can find AnnatLaw Colorado. Edu. Our podcast is produced and distributed by Free Float Media. Thanks for listening. We'll talk again soon.

[B]

It.