David Kershaw
david kershaw

Email: R.D.Kershaw@lse.ac.uk
Administrative support: Anna Lisowska
Room: New Academic Building 7.16

David Kershaw is Professor of Law at the LSE and Director of the Executive LLM Programme. He joined the LSE in 2006. Prior to joining the LSE he was a Lecturer in Law at the University of Warwick between 2003-2006. He is admitted to the New York Bar and is a qualified UK solicitor. Prior to his academic career, he qualified as a Solicitor at Herbert Smith, London and practised corporate law in the Mergers & Acquisitions Group of Shearman & Sterling in New York and London. He holds a LLM and SJD from Harvard Law School and a LLB from the University of Warwick.

Research Interests

My primary research areas are corporate law, takeover regulation and accounting regulation. Current book projects include a monograph on The Foundations of US and UK Corporate Law looking at the evolution and divergence of corporate fiduciary law from the nineteenth century to today. Other research projects include empirical work on the effects of managerial insulation on firm performance and characteristics.

External Activities

David is a Senior Researcher with LSE’s Financial Markets Group and a Senior Fellow at the University of Melbourne where he teaches Corporate Governance. David is also Articles Editor for the Modern Law Review. Together with Professor Julia Black, David recently gave evidence before the Parliamentary Committee on Banking Standards. Our written submission to the commission is available here and a webcast of the session can be viewed here.



Policy Briefings

Principles of Takeover Regulation by David Kershaw (Oxford University Press, 2016

Principles of Takeover Regulation explores the nature and optimality of the regulation of the UK’s market for corporate control through the Takeover Code, which is maintained and enforced by the Takeover Panel.

To provide context within which to evaluate UK takeover regulation, the book commences with a consideration of the theory and empirical data on the value effects of the market for corporate control, as well of as its implications for corporate governance, board decision making and stakeholders. It then proceeds to investigate the origins of the UK’s self-regulation of the market for corporate control through the Takeover Code and Panel and explores the drivers of its considerable success. It analyses the key takeover events that created public, political and shareholder consternation in the mid- and late-1950s and the early- and late-1960s, interrogates the multifaceted reactions to these events, and traces how these reactions were translated into regulatory action. Through this analysis the book explores how the City of London’s merchant banking community took control over takeover regulation; fashioning the mode and substance of regulation it its interests, and thereby ensuring its success.

The book then proceeds to provide a detailed account of the substantive rules and principles that make up the Code, critically evaluates the standard justifications for these rules and principles, and considers their effects on market activity and the structure and behaviour of UK companies. The book also investigates the nature, effects and optimality of this regulatory system. In particular, it considers whether the mode of regulation and the regulatory identity of the Takeover Panel – as an independent “self-” or “market-controlled-” regulator – distorts and limits the rule making process. In this regard, the book considers whether the substance and mandatory form of several of the Code’s most well-known rules - including the mandatory bid rule, the non-frustration rule, its rules on bid conditionality, and the prohibition on deal protections – are, inter alia, the product of the maintenance and protection of this sui generis approach to takeover regulation. The book argues that it is the mode of regulation that renders the Panel and the Code overly protective of its “keystone rules” - the rules including the non-frustration rule and the mandatory bid rule which demarcate the Code’s regulatory space - and contributes to the effective closure of this regulatory system in relation to contemporary market conditions and events that raise question marks about the suitability of these rules. At times this results in incongruent regulatory responses to these events which deflect political and public attention from doubts about these rules. Given the uncertain policy and principled case for these rules, which the book also explores, the book submits that there is real doubt as to whether the substance and mode of UK takeover regulation is optimal for UK companies and the UK economy.

Company Law in Context: Text and Materials 2nd. edition (Oxford University Press : 2012)

Selected articles
and chapters in books

'Hostile Takeovers and the Non-Frustration Rule: Time for a Re-Evaluation'  Law, Society and Economy Working Paper Series 19-2016 (2016)

This Chapter critically evaluates the Takeover Code’s "keystone" rule, the non-frustration rule. It first explores the scope of the rule to determine what steps target boards can and cannot take when faced with a hostile offer, and then considers the general meeting’s power to approve of frustrating action and why in practice such approvals are never seen. The Chapter then proceeds to consider where the rule is optimal for UK companies and the UK economy. It considers in particular the roots of the broad support in the UK for the rule, arguing that the commitment to the rule is a function not of the policy balance between the advantages and disadvantages of the rule but rather it is a function of the regulatory biases and preferences generated by the structure of power relations in a UK company. The Chapter then proceeds to consider this policy balance in a UK context and concludes that the policy case for prohibiting takeover defences is weak. It then moves to consider the reform options in light of the post- Cadbury and Kraft debate on this issue. The Chapter considers and supports both reform of the non-frustration rule (by abolishing the rule) and a higher acceptance threshold (which effectively enables shareholders who are interested in long term fundamental value to make the decision). But the Chapter rejects disenfranchisement of short-term shareholders and an enhanced public interest test. It concludes that it is now time for the Panel to engage with the broader consequences of the rule and possible reform options.

(with by Daniel Ferreira, Tom Kirchmaier and Edmund-Philipp Schuster)   'Measuring Management Insulation from Shareholder Pressure' LSE Law Society and Economy Working Paper Series, 01-2016

We propose a management insulation measure based on charter, bylaw, and corporate law provisions that make it difficult for shareholders to oust a firm’s management. Unlike the existing alternatives, our measure considers the interactions between different provisions. We illustrate the usefulness of our measure with an application to the banking industry. We find that banks in which managers were more insulated from shareholders in 2003 were significantly less likely to be bailed out in 2008/09. These banks were also less likely to be targeted by activist shareholders, as proxied by 13D SEC filings. By contrast, popular alternative measures of insulation -- such as staggered boards and the Entrenchment Index -- fail to predict both bailouts and shareholder activism.

'Corporate Law and Self-Regulation' LSE Law Society and Economy Working Paper Series, 05-2015

This paper explores the different ways in which market actors are 'co-opted' as corporate law regulators. It considers the preconditions for generating 'endogenous self-regulation' through the lens of the formation and operation of the UK Takeover Code and Panel. The paper argues that its incontrovertible success as a command, control and surveillance regulator is in large part attributable to merchant (investment) banking control over the production of the original Code and the ways in which the Code generates direct and indirect income opportunities for investment bankers in takeover activity, referred to in the paper as 'bribing the quarterback'. The paper also uses the Takeover Panel example to explore the unexpected regulatory biases that are generated by the survival and legitimacy concerns of the self-regulator itself. From endogenous self-regulation, the paper moves onto consider 'market-controlled' regulation where the state directly co-opts market actors as regulators. Using the example of 'comply or explain' corporate governance codes, the paper explores the powerful market-based enforcement drivers and argues that these drivers interact with a 'comply or explain' regulatory outlook that is likely to, and does, lead to sub-optimal regulation that overweighs accountability concerns. Setting these regulatory effects alongside the regulatory biases identified in the analysis of the Takeover Code, the paper shows that the regulatory biases generated by self-regulation are more multi-faceted than, and often inconsistent with, the standard account that self-regulation is likely to generate rules that favour the regulated.

‘The Rule in Foss v Harbottle is Dead; Long Live the Rule in Foss v Harbottle'  Journal of Business Law  (2015) (3) pp.274-302

The proper plaintiff rule reflects the elemental legal principle that only the right-holder is entitled to enforce the right. At common law, as a corollary of this principle, only when the general meeting was incapable of acting in the corporate interest could a derivative action be brought. It followed from this principle that wrongdoer control of the shareholder meeting was a pre-requisite to derivative litigation. The Companies Act 2006 introduced what is considered to be a ‘new’ derivative action mechanism. Although the Act is silent about the wrongdoer control requirement, it is widely understood to have abolished it. Central to this understanding is the view that this is what Parliament intended, as supported by a view of the mischief of the Act and by several ministerial statements. However, careful attention to the extra-legislative record as well as to the rules on statutory interpretation render this view of the mischief of the Act inaccurate and these statements of ministerial intent inadmissible. Detaching our interpretation of the Act from reliance upon this record opens up unexpected possibilities when combined with observations from recent authority which suggest that the Act’s reforms were not intended to abolish the proper plaintiff principle. A compelling case can be made that wrongdoer control remains as a threshold condition to derivative litigation.

‘Towards a More Ethical Culture in Finance: Regulatory and Governance Strategies’ (with Dan Awrey) in Capital Failure: Rebuilding Trust in Financial Services (2014, Oxford University Press) 277-304

'Consequential Responsibility for Client Wrongs: Lehman Brothers and the Regulation of the Legal Profession' (2013) 76 MLR 26-61 (with Richard Moorhead)

Should transactional lawyers bear responsibility when their competent actions facilitate unlawful activity by their client? Or is a lawyer's only concern to act in the client's interest by providing her with the advice and support she seeks? The high profile failure of Lehman Brothers provides a unique opportunity to explore these questions in the context of the provision of a legal opinion by a magic circle law firm. A legal opinion which, although as a matter of law was accurate, was a necessary precursor to an accounting treatment by Lehman Brothers which was described by the Lehman's Bankruptcy Examiner as ‘balance sheet manipulation’. The article argues that the law's existing understanding of when consequential responsibility should be imposed on those who assist another's wrongdoing provides a theory and a tool‐kit whose application can be justifiably extended to the professional regulation of transactional lawyers.

'Between Law and Markets: Is there a Role for Culture and Ethics in Financial Regulation' (2013) 38 Delaware Journal of Corporate Law) (with Dan Awrey and William Blair) pp.191-245

The limits of markets as mechanisms for constraining socially suboptimal behavior are well documented. Simultaneously, conventional approaches toward the law and regulation are often crude and ineffective mechanisms for containing the social costs of market failure. So where do we turn when both law and markets fail to live up to their social promise? Two possible answers are culture and ethics. In theory, both can help constrain socially undesirable behavior in the vacuum between law and markets. In practice, however, both exhibit manifest shortcomings. To many, this analysis may portend the end of the story. From our perspective, however, it represents a useful point of departure. While neither law nor markets may be particularly well suited to serving as “the conscience of the Square Mile”, it may nevertheless be possible to harness the power of these institutions to carve out a space within which culture and ethics – or, combining the two, a more ethical culture – can play a meaningful role in constraining socially undesirable behavior within the financial services industry.

The Path of Corporate Fiduciary Law (2012) 8 New York University Journal of Law and Business 395-485

Contemporary accounts of corporate legal evolution view lawmakers as highly responsive to the economic interests of both pressure groups and markets. Through this lens law is understood to be the product of pressures exerted by managers, investors, institutional shareholders and the Federal Government, and the incentives of state lawmakers to accommodate the interests of these pressure groups. This lens dominates our current understanding of corporate legal evolution in the United States and is becoming highly influential in comparative accounts of corporate legal variation. This article sounds a note of objection. The article argues that the disciplinary pendulum has swung too far toward external accounts of legal evolution and too far away from internal accounts of legal change which view the path of law, at least in part, as the product of the internally generated constraints of the legal system – the relative autonomy of the law. To make this argument, the article considers the internal constraint of the conception of the corporation in 19th century US and UK corporate law and the evolution of self-dealing law in these two jurisdictions. It shows how two jurisdictions that started from the same legal proposition about self-dealing diverged rapidly as a result of the interaction of this proposition with profoundly different conceptions of the corporation. Contrary to the dominant account of the evolution of self-dealing law in the United States, the contemporary self-dealing rule is not the legally unexplained product of external market pressures but the logical and consistent product of the path of fiduciary law trodden through the corporate conception. The article shows that for contemporary corporate law a significant dose of inevitability was administered at the inception of general incorporation.

'Is the Board Neutrality Principle Rule Trivial? Amnesia about Corporate Law in European Takeover Regulation'   (with C. Gerner-Beuerle and M. Solinas) European Business Law Review (2011) 22(5), pp.559-622; working paper published as WPS03-2011 in LSE Law, Society and Economy Working Paper Series (May 2011).

Whether the European Union's Takeover Directive should have adopted a mandatory neutrality rule has been the subject of much debate. As the European Commission commences its review of the Directive this debate is being reignited. A view is crystallising that the success and failure of the Directive can, in large part, be measured by the number of Member States that have opted-in, or out of the neutrality principle, or have opted-in subject to the reciprocity option. The contestability of European corporations is viewed through this lens as a function of the extent to which EU Member States have adopted an unqualified neutrality rule. This article takes issue with this viewpoint. It argues that the pre-Directive debate and the post-Directive assessment have failed to consider the core lesson of takeover defences in the United States, namely that the construction of defences and their potency are a function of basic corporate law rules. If corporate law rules do not enable the construction of takeover defences, or undermine the extent to which they can be potently deployed, then the adoption or rejection of the neutrality principle in Member States is of trivial significance. This article explores the triviality hypothesis in three central EU jurisdictions: the United Kingdom, Germany, and Italy. It concludes that, although there is variable scope to construct and deploy takeover defences in these jurisdictions, the triviality thesis is well founded.

‘The Decline of Legal Capital: An Exploration of the Consequences of Board Solvency Based Capital reductions’ in A. Reisberg and D. Prentice eds, Corporate Finance in the UK and the US (OUP, 2011) pp.27-58

'Involuntary Creditors and the Case for Accounting-Based Distribution Regulation' (2009) Journal of Business Law  (2) 140-165

This article argues that accounting-based distribution regulation provides variable and at times significant protection to both existing involuntary creditors - by increasing the probability that they will be paid - and the constituency of involuntary creditors - by decreasing the probability that companies' actions will produce involuntary creditors. These benefits become visible when close attention is paid to the interaction of applicable accounting standards on the recognition of provisions with the UK's existing distribution regime. Whilst the current debate and reform consensus correctly analyses the relationship between the current regime and adjusting creditors, the article argues that the organizing category of the 'capital maintenance doctrine' has obstructed inquiry into the ways in which the existing rules' dependence on accounting standards results in benefits for involuntary creditors.

‘The Illusion of Importance: Reconsidering the UK’s Takeover Defence Prohibition’ (2007) 56 International and Comparative Law Quarterly 267-308

This article considers the significance of the UK Takeover Code's non-frustration prohibition. It asks to what extent the prohibition actually prevents post-bid, director-controlled defences that would not have been, in any event, either formally prohibited by UK company law without share-holder approval or practically ineffective as a result of the basic UK company law rule set. It finds that there would be minimal scope for director-deployed defences in the absence of the non-frustration prohibition, and that, in the context of UK company law, such defences have limited scope to be deployed for entrenchment purposes. Furthermore, this minimal scope for board defensive action would, in order to be compliant with a director's duties, require a pre-bid, shareholder-approved alteration to the UK's default constitutional balance of power between the board and the shareholder body to allow corporate powers to be used for defensive effect. In light of this conclusion the article looks for a rationale to justify denying shareholders the right to make this limited and potentially beneficial defensive election. It concludes that no persuasive rationale is available and that the prohibition is unnecessary and without justification.

The Oxford Annotated Companies Acts (2007) (contributing author, chapters on accounting and audit, together with KPMG)

Annotated Companies ActsThis new looseleaf provides a detailed guide to the impact of the Companies Act 2006 on company law and practice. The Act provides the most fundamental change to company law in the last 20 years, reforming many aspects of the legislation including much debated areas such as directors' duties and financial assistance. This new looseleaf covers the new law and the surviving parts of the existing regime by way of a section-by-section commentary which highlights the developments in the law and provides guidance on the impact of these changes. The commentary and legislation is organised according to topic and, as the law develops, will include all substantive regulations with relevant commentary. Additionally derivation/destination tables will assist readers with tracking the development of the legislation and allow ease of navigation around the new regime. Practitioners and academics alike will need this new work, written from the perspective of the new legislation and providing a complete picture of the complex new regime. Drawing on committee reports and Hansard to shed light on interpretation of the new legislation, this work will fast become the new authority on company law.

‘Waiting for Enron: the Unstable Equilibrium of Auditor Independence Regulation’ (2006) 33 Journal of Law and Society 388-420

A primary function of auditor independence regulation is to ensure that any financial incentives auditors may have to approve misleading or inaccurate accounting are outweighed by market and regulatory deterrents to compromising an auditor's independence. This article is an inquiry into the current state of this incentive equilibrium in the United Kingdom: the possible costs and benefits that may be incurred by auditors if they elect to acquiesce to management's demands to accept problematic accounting. It argues that the equilibrium position currently incentivizes a rational auditor to acquiesce. On the one hand, the article demonstrates that the recent evolution of audit firm revenue streams has provided auditors with a substantial incentive to compromise their independence and provided management with credible sanctions to pressurize them to do so. On the other hand, the article shows that regulatory and market costs of acquiescence do not counterbalance the benefits of acquiescence.

‘Evading Enron: Taking Principles Too Seriously in Accounting Regulation’ (2005) 68 Modern Law Review 594-625 (this article was awarded the MLR’s annual Wedderburn Prize)

The UK's regulators and accounting profession are at one in their assessment of why the UK avoided its Enron: the UK's approach to accounting regulation is principles-based in contrast to the rules-based approach taken in the United States. According to this position, the UK has its principles-based regulatory technique to thank for keeping the integrity of its markets intact during the infectious greed of the 1990s. This article is an inquiry into the effect and validity of this claim. It investigates the effect that this claim has had upon structuring the UK's post-Enron regulatory process and provides a close analysis of UK and US accounting regulation to determine whether the UK's regulation is in fact distinctively principles-based. It concludes that the structuring effect of the claim was considerable, diverting the reform process away from some of the US's most important Enron lessons. This is of particular concern as the article also concludes that the claim is without foundation.

‘Does it Matter How the Law Thinks About Corporate Opportunities’ (2005) 25 Legal Studies 533-558

English opportunities regulation is confused about its relationship to the concepts of ownership and property. Recent reform proposals from the Company Law Review Steering group would have changed English law's dominant regulatory lens: the way in which it thinks about the opportunities problem, from an approach focused on conflicts of interest to one focused on the 'ownership' of opportunities. This ownership approach is commonly referred to as the corporate opportunities doctrine. This article argues that the proposal failed as it did not consider the interpretative possibilities generated by changing the regulatory lens. However, the proposal inadvertently makes a contribution to the debate as it directs our attention to the function and meaning of ownership concepts in the opportunities context. Property in the opportunities setting is simply a label for qualified ownership as between the director and the company. However, the article argues that by understanding references to property in terms of traditional notions of property English law and commentary has obstructed the consideration and development of a long-standing English corporate opportunities doctrine.

‘Lost in Translation: Corporate Opportunities in Comparative Perspective’ (2005) 25 Oxford Journal of Legal Studies 603-627

The corporate opportunities doctrine in the United States plays a pivotal role in the contemporary debate about whether English law's regulation of when a director can personally exploit an opportunity encountered whilst a director should be more flexible than it is perceived to be. This article argues that this comparative encounter has produced partial and misleading accounts of US state corporate law and English law. The article submits three reasons for this. First, English scholarship has not taken full account of the institutional context of regulatory competition for incorporations within which corporate law in the United States is produced. This institutional context raises concerns about the influence of managerial interests on opportunities regulation in the US and raises questions about how an opportunities doctrine could evolve differently in the UK absent the pressures of regulatory competition. Second, scholars who praise US approaches to the corporate opportunities doctrine as a modern model of reform allow an idea about the American economy in the late 20th century to get in the way of a thorough consideration of the purported economic benefits of more flexible regulation. Third, the effect of jurisdictional juxtaposition or contrast leaves a strict, certain impression of English law that brushes over its flexible tensions and ambiguities.

‘No End in Sight for the History of Corporate Law: The Case of Employee Participation in Corporate Governance’ (2002) 2 Journal of Corporate Law Studies 34-81

This article contests the claim made by Professors Hansmann and Kraakman that the end of history in corporate law has been reached and that this evolutionary last stop has no place for employees in corporate governance. The article analyses the theoretical foundations of this claim, namely Professor Williamson's transaction cost account of board control and Professor Hansmann's governance cost account of when worker ownership works and fails. It argues that while both costs place constraints on the form of efficient economic organization, neither cost can explain the absence of hybrid institutions, both real and imaginary, that would be both transaction and governance cost efficient and allow for employee participation in corporate governance. Accordingly, this article submits that if the end of history for corporate law has arrived, its identification is fortuitous, as the claim lacks theoretical support.