Equity Decoupling: Empty Voting and Hidden Ownership

Traditionally, corporate law has conceptualized the share as a unified legal construct, combining voting rights with economic ownership on the normative premise that governance control should be exercised by those who bear financial risk. This model was historically supported by the dominance of long-term institutional investors, whose stable equity positions and regular involvement in corporate governance reinforced the traditional alignment between ownership, control, and risk. However, the increased prevalence of passive investment vehicles and diversified financial intermediaries—now among the largest shareholders in listed companies—has disrupted this alignment. These entities frequently refrain from actively exercising their voting rights, thereby creating a governance vacuum that activist shareholders, particularly hedge funds, have been quick to exploit. Recognizing the strategic potential of equity decoupling—the separation of voting rights from economic exposure—such market participants have incorporated mechanisms such as empty voting into profit-driven trading and control strategies, enabling them to exert governance power without a corresponding long-term financial stake. This thesis examines equity decoupling and its manifestations—empty voting and hidden ownership—to assess their implications for corporate governance and the effectiveness of existing regulatory regimes. Through a doctrinal approach, complemented by a comparative legal perspective and insights from law and economics, the analysis addresses three interrelated research questions: (I) How does equity decoupling challenge the traditional conception of shares as unified, residual interests in corporate governance? (II) In what ways do the phenomena of empty voting and hidden ownership illustrate equity decoupling in practice? (III) Why should equity decoupling be addressed by corporate and securities law, and if so, by which legal mechanisms or regulatory approaches? The analysis demonstrates how equity decoupling manifests in practice through mechanisms that disrupt the traditional alignment between ownership and control. Empty voting involves the exercise of voting rights absent any meaningful economic exposure, enabling investors to influence corporate outcomes while remaining insulated from financial risk. These strategies often involve securities lending, short selling, or derivative arrangements that neutralize or invert underlying positions. Comparable dynamics have emerged in SPAC transactions, where shareholders may vote in favor of a merger while simultaneously redeeming their shares—thus exercising governance rights without retaining a corresponding economic interest. Such practices distort the governance process and undermine the position of long-term shareholders. Hidden ownership, by contrast, involves the accumulation of substantial economic exposure without acquiring formal voting rights or triggering disclosure obligations. This allows investors to amass economic interest while circumventing transparency requirements, thereby compromising market oversight. Collectively, these forms of equity decoupling expose structural insufficiencies in the legal framework governing corporate control, raising serious concerns about its capacity to uphold accountability, coherence, and market integrity. This thesis contends that equity decoupling constitutes a structural vulnerability in contemporary corporate governance and capital markets. It exposes the inadequacy of legal frameworks grounded in the traditional alignment of ownership, control, and economic exposure. As financial innovation continues to enable market participants to disaggregate these elements, the coherence of shareholder governance and the legitimacy of corporate decision-making are increasingly undermined. By separating economic exposure from voting rights, equity decoupling distorts shareholder incentives, exacerbates information asymmetries, facilitates regulatory arbitrage, and challenges the traditional view that governance control should reside with those who bear financial risk. This necessitates a reassessment of doctrinal foundations and regulatory mechanisms to ensure that corporate and securities law can effectively respond to evolving market practices while preserving the foundations of corporate governance and the effective functioning of capital markets.