The Virtue of Common Ownership in an Era of Corporate Compliance

Recent years have seen a tremendous rise in common ownership, a structure in which large institutional investors have significant holdings in corporations that are horizontal competitors. Common ownership has long been the topic of scholarly debate with many scholars traditionally arguing that common ownership presents antitrust problems. Rather than enter into the antitrust debate, this Article argues that common ownership presents great virtue for corporate governance, and more specifically-corporate compliance.In recent years the Department of Justice and other enforcement authorities have increasingly directed their resources towards enforcing laws that are typically oriented towards specific industries, such as healthcare (pharmaceuticals), financial and energy industries, or geographic areas. These laws-including the Foreign Corruption Practices Act, False Claims Act, Bank Secrecy Act, as well as laws and regulations aimed at preventing money laundering, environmental, and antitrust violations-expose companies associated with specific industries to heavy legal risks-which I term "macro legal risks." This Article argues that institutional investors who hold shares in corporations in line with the common ownership structure are uniquely positioned to enhance the compliance of those corporations with industry-oriented laws, and to minimize exposure to macro legal risks. Institutional investors who invest in corporations that operate in the same industry can take advantage of three interrelated merits of common ownership: (1) enhanced incentives for monitoring compliance of corporations with industry-oriented laws, which accordingly leads to minimizing macro legal risks; (2) privileged access to rulemaking and lawmaking; and (3) experimental learning of macro legal risks. These merits allow institutional investors to better monitor corporations in which they invest and practice effective corporate governance and compliance. The incentives of institutional investors increase due to increased aggregate exposure to problems affecting a certain industry. The difficulty of responding to these problems decreases as institutional investors are able to apply a one-size-fits-all approach to these problems, rather than develop individualized solutions for specific corporations. Due to their status as major asset holders, institutional investors develop close relationships with regulators and lawmakers, giving them a chance to influence regulation beyond the normal