Marcel Kahan and Edward Rock are two of American corporate law's most thoughtful -- and productive -- scholars. Kahan, a professor at New York University School of Law, and Rock, who's at the University of Pennsylvania Law School, have jointly written papers on everything from the effect of rising CEO compensation on hostile takeovers to the politics of the Delaware Court of Chancery's decision in the Bear Stearns Cos. shareholder litigation. In their most recent paper, "Embattled CEOs," Kahan and Rock offer a thorough overview of the trends that have reduced CEO power in favor of shareholders and boards. (The paper is available on www.ssrn.com.)

The most important is the rise of institutional investors, a trend that began as far back as the 1980s and has continued unabated. As the authors note, "Aggregate ownership by institutions has increased every single year since 2000, meaning that the day is not far off when dispersed individual investors will own only a trivial fraction of equities."

And the composition of that ownership has changed, with mutual funds and activist investors increasing in importance as private pension funds decline.

Shareholders have pressured companies to remove staggered boards and implement majority election of directors. And even though the U.S. Securities and Exchange Commission has thus far declined to give shareholders access to the corporate proxy, Kahan and Rock argue that the majority election of directors gives them "many of the same powers in a more useful form." As shareholder power has increased, boards have become more independent of their CEOs. The percentage of boards with nominating and corporate governance committees has increased over the past decade, as has the percentage with a formal process for evaluating CEOs.

Kahan and Rock doubt this trend will change. "Unlike in the 1980s, the threat to managers derives from multiple sources -- traditional institutions, hedge funds, proxy advisors, technology, and their fellow directors -- rather than from a small group of raiders."

The authors don't discuss the effects of the financial crisis on the balance of power among CEOs, boards and shareholders. But collapsing shares can only make boards more skittish, shareholders more restive and, perhaps, Congress more intrusive, all of which will drive CEOs further into their bunkers.

Kahan is also working on a series of papers about proxy advisers. In the first, he, NYU's Stephen Choi and Penn's Jill Fisch analyze the recommendations in director elections made by four proxy advisory firms: Institutional Shareholder Services Inc., Proxy Governance Inc., Glass, Lewis & Co. LLC and Egan-Jones Rating Co. The firms provide only "limited transparency" into the ways they reach their decisions despite the ever-increasing importance of their recommendations in director elections and proxy contests. "The majority of the policy guidance they publish consists of a variety of performance and governance factors that will be evaluated or weighed in an undisclosed manner and applied on a company-specific basis," Choi, Fisch and Kahan write.

The professors try to reverse-engineer these factors. They analyze the firms' recommendations in uncontested director elections in 2005 and 2006 in an attempt to uncover the bases for the four firms' ratings and find that each focuses on different factors: ISS on governance; PGI on compensation; Glass Lewis on audit and disclosure; and Egan-Jones on a mix.

All of this seems reasonable to the authors, who "find compelling evidence that withhold recommendations are made in response to identifiable issuer- and director-specific problems, including financial restatements, SEC investigations, excessive executive compensation, failure to attend board meeting, lack of independence, and failure to implement precatory proposals adopted by shareholders." Significantly, given shareholder activists' opposition to takeover defenses, the authors found that defenses "appear to have no impact on recommendations in director elections."

Despite these findings, the authors wonder whether the mutual funds, pension funds and other investors that use the various firms' ratings know the reasons for them. If not, then the firms "would lack accountability for, and could pursue their own agenda in making, their voting recommendations," a criticism that has long been leveled against the proxy advisers. Choi, Fisch and Kahan offer no view on whether this is the case, but their work can only increase the pressure on the advisers to be more forthcoming about their methods.

David Marcus is senior writer at Corporate Control Alert.