Discussion paper

DP3649 Managers, Workers and Corporate Control

If the private benefits of control are high and management owns a small equity stake, managers and workers are natural allies. Two forces are at play. First, managers can transform employees into a 'poison pill' through generous long-term labour contracts and thereby reduce the firm?s attractiveness to a raider. Second, employees act as 'white squires' for the incumbent managers: to protect their high wages, they resist hostile takeovers, by refusing to sell their shares to the raider or by lobbying against the takeover. The model is consistent with available empirical findings, and also yields new predictions.


Pagano, M and P Volpin (eds) (2002), “DP3649 Managers, Workers and Corporate Control”, CEPR Press Discussion Paper No. 3649. https://cepr.org/publications/dp3649