Index fund managers and other institutional investors, perhaps with the input of academics focused on governance issues, should develop a common set of best practices for corporate bylaws that seek information from activists nominating directors, White & Case LLP partner Richard Brand said.

The market for these bylaws right now set by the courts, which isn’t the best way for “any kind of corporate governance practice to be set,” Brand explained on the Activist Investing Today podcast.

“The court can say that this is so bad, so burdensome on the shareholder franchise that we have to declare it unlawful,” Brand said, “If that’s the dividing line between what’s acceptable and not acceptable, you will probably end up with a relatively shareholder unfriendly market.”

A common set of best practices on these advance notice bylaws, set by big institutional investors, could help corporate boards and activist investors reach compromises and avoid costly litigation

“Before the market is going to be set by private ordering among shareholders and boards, there needs to be some kind of standard, and there isn’t a standard,” Brand said.

He noted that in other areas, such as regarding whether corporations should have classified boards or allow for annual election of directors, the market has been able to identify a standard through private ordering, and the courts didn’t have to be the arbiter of what’s the best practice.

“Clearly, it is 100% legal for a company to have a classified board, yet the market has evolved so for the most part large-cap companies don’t have classified boards,” Brand said. “The reason for that is that large institutional shareholders have made it clear what their expectations are, and companies have responded accordingly.”

Beyond advance notice bylaws, Brand also offered his view on the Trump administration’s purchase of a 10% stake in Intel Corp. (INTC) and whether to expect more similar infusions into other U.S. corporations, and what it all means for activist investors.

Check out the podcast with Richard Brand below:

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