Shareholder Activism

Despite growing evidence of the benefits to a firm of improving corporate social performance (CSP), many firms vary significantly in terms of their CSP activities. This research investigates how the characteristics of the stakeholder landscape influence a firm’s CSP breadth. Using stakeholder theory, we specifically propose that several factors increase the salience and impact of stakeholders’ demands on the firm and that, in response to these factors, a firm’s CSP will have greater breadth. A firm’s CSP breadth is operationalized as (...) the number of different sub-domains of CSR for which a firm has taken positive actions and is captured using a unique dataset from Kinder, Lydenburg, and Domini (KLD). This data set includes positive and negative firm actions across more than 35 different dimensions of socially responsible behavior. Findings based on a longitudinal, multi-industry sample of 447 US firms during the period from 2000 to 2007 demonstrate that firms which: (1) have greater sensitivity to stakeholder needs as a result of the firm’s strategic emphasis on marketing and/or value creation, (2) face greater diversity of stakeholder demands, and (3) encounter a greater degree of scrutiny or risk from stakeholder action have a greater breadth of CSP in response to the stakeholder landscape that they face. (shrink)

This empirical study examines corporate responses to activist shareholder groups filing social-policy shareholder resolutions. Using resource dependency theory as our conceptual framing, we identify some of the drivers of corporate responses to shareholder activists. This study departs from previous studies by including a fourth possible corporate response, engaging in dialogue. Dialogue, an alternative to shareholder resolutions filed by activists, is a process in which corporations and activist shareholder groups mutually agree to engage in ongoing negotiations to deal with social issues. (...) Based on a unique dataset of resolutions filed by member organizations of the Interfaith Center on Corporate Responsibility from 2002 to 2005 and the outcomes of these resolutions, our analysis finds that corporate managers are more likely to engage in dialogue with shareholder activists when the firm is larger, is more responsive to stakeholders, the CEO is the board chair, and the firm has a relatively lower percentage of institutional investors. (shrink)

Shareholder activism has become a force for good in the extant corporate governance literature. In this article, we present a case study of Nigeria to show how shareholder activism, as a corporate governance mechanism, can constitute a space for unhealthy politics and turbulent politicking, which is a reflection of the country’s brand of politics. As a result, we point out some translational challenges, and suggest more caution, in the diffusion of corporate governance practices across different institutional environments. We contribute to (...) the literature on corporate governance in Africa, whilst creating an understanding of the political embeddedness of shareholder activism in different institutional contexts—i.e. a step closer to a political theorising of shareholder activism. (shrink)

As one of the more progressive facets of the socially responsible investment (SRI) movement, shareholder activism is generally recommended or justified on the grounds that it can create social change. But how effective are different kinds of activist campaigns likely to be in this regard? This article outlines the full range of different ways in which shareholder activism could make a difference by carefully going through, first, all the more specific lines of action typically included under the shareholder activism umbrella (...) and, second, all of the different ways in which it has been suggested that these could influence the activities of commercial companies. It is argued that – although much more empirical research is needed in the area – there are at least theoretical reasons for thinking that it will be difficult to influence companies through the standard actions of filing or voting on shareholder resolutions. However, some alternative strategies open to activists may allow them to increase their efficacy. It is specifically argued that even individual investors could be able to push for corporate change through devising a radically selfsacrificial campaign that manages to get the attention of powerful forces outside the corporate sphere. (shrink)

This article advances the idea that shareholders who seek to influence corporate behaviour can be understood analytically as norm entrepreneurs. These are actors who seek to persuade others to adopt a new standard of appropriateness. The article thus goes beyond studies which focus on the influence of shareholder activism on single instances of corporate conduct, as it recognises shareholders' potential as change agents for more widely shared norms about corporate responsibilities. The article includes the empirical example of US internet technology (...) companies who, in their Chinese operations, face conflicts of norm systems in regard to freedom of expression on the internet. Shareholders have been active in seeking to persuade these companies to adopt a norm of adhering to global standards for human rights over restrictions implied by authoritarian regimes to which they deliver services. (shrink)

The activism of institutional investors tends more and more toward the supervision and control of the behavior of the managers of big companies. In this article, we present a model based on the creation of an activism index that lets us evaluate such activism's effect on the sensitivity of the investment policies of a company in the face of financial variables and market variables. To test our assertions, we analyze firm-level data for United Kingdom, Germany, France, Denmark, and Spain during (...) the period 1995-2004. Our results point to a significant reduction in the sensitivity of company investment decisions in the face of these variables, especially relative to intangible capital, as a result of the neutralizing effect of activism on the high agency costs of free cash flow and on the information asymmetries of the market. (shrink)

The popular view of shareholder activism focuses on shareholder resolutions and the shareholder vote via proxy statements at the annual meeting, which is treated as a "David vs. Goliath" showdown between the small group of socially responsible investors and the powerful corporation. This article goes beyond the popular view to examine where the real action typically occurs-in the Dialogue process where corporations and shareholder activist groups mutually agree to ongoing communications to deal with a serious social issue. Use of the (...) capitalized word "Dialogue" is intended to distinguish this formal process between corporations and shareholders from all the other forms of dialogue or twoway communication exchanged between a corporation and its stakeholders. The phenomenon of Dialogue between a corporation and dissident shareholders has not been analyzed in the academic literature or in the popular press because it occurs behind the scenes and out of sight from media scrutiny. Yet this is where a great deal of social change initiated by shareholder activists is negotiated. This article contributes both theoretically and empirically to the study of Dialogues between shareholder activists and corporations. We explain how Dialogues occur in the context of the shareholder resolution process and examine two Dialogues that focus on international labor issues in two industries. Then data on Dialogues during the period, 1999-2005, from the Interfaith Center on Corporate Responsibility are analyzed. This research contributes to knowledge about the Dialogue process and the emerging literature on corporation-stakeholder engagement. (shrink)

Concentrated attention on institutional investors' activism has been perceived in the last few decades and further intensified in the post‐Enron era. A new area of particular significance that has emerged is institutional investors' growing awareness and practice of socially responsible investment (SRI). This article starts by reviewing the importance of institutional investor activism and the historical implication of SRI. Significantly, various elements that give rise to the growth of SRI in the modern business world are considered in detail. It is (...) recognized that, although current empirical evidence suggests ambiguous effects of SRI, the positive impact of institutional investors' activism on SRI is likely to have been undermined due to the underdevelopment of evaluation systems, and SRI should stand out as a good investment option for its joint financial and societal concerns. Nevertheless, obstructions still exist in the exercise of investor activism and the pursuit of SRI strategy, which implies that, at least in the near future, SRI strategy will remain as a minor investment trend for institutional investors in Anglo‐American countries. Additional regulatory methods and awarding schemes are, therefore, expected to motivate institutional investors' activism on SRI, and subsequently to promote global sustainability. (shrink)

Shareholder activism has been largely neglected in the few available studies on corporate governance in sub Saharan Africa. Following the recent challenges posed by the Cadbury Nigeria Plc, this paper examines shareholder activism in an evolving corporate governance institutional context and identifies strategic opportunities associated with shareholders’ empowerment through changes in code of corporate governance and recent developments in information and communications technologies in Nigeria; especially in relation to corporate social responsibility in Nigeria. It is expected that the paper would (...) contribute to the scarce literature on corporate governance and accountability in Africa. (shrink)

Recent years have featured a spate of regulatory action pertaining to the development and/or disclosure of corporate governance structures in response to financial scandals resulting in part from governance failures. During the same period, corporate governance activists and institutional investors increasingly have called for increased voluntary governance disclosure. Despite this attention, there have been relatively few comprehensive studies of governance disclosure practices and response to the regulation. In this study, we examine a sample of 50 U.S. firms and their public (...) disclosure packages from 2004. We find a high degree of variability in the presentation and reporting format choices for many elements of the governance structure. This variability includes several items for which disclosure is mandated by regulators or legislative action. In particular, smaller firms offer fewer disclosures pertaining to independence, board selection procedures, and oversight of management (including whistleblowing procedures). There are also trends associated with board characteristics: boards that are less independent offer fewer disclosures of independence and management oversight matters. Moreover, large firms provide more disclosures of independence standards, board selection procedures, audit committee matters, management control systems, other committee matters, and whistleblowing procedures but do not appear to have a strictly superior information environment when compared to smaller firms. The findings raise questions about compliance with regulatory requirements and the degree to which conflicts of interest between managers and directors are being controlled. While there have been notable improvements in the information environment of governance disclosures, there remain structural issues that may possess negative ramifications for stakeholders. (shrink)

It has been argued amply that alternative theoretical approaches to the corporate governance phenomenon can be a valuable complement to the mainstream economic approach. However, such approaches are largely embryonic and empirical studies based on more organisationally oriented theory are few and geographically limited. The purpose of the present article is to discuss the value of organisationally oriented approaches to corporate governance as a complement to more traditional economic approaches. This is accomplished by discussing the findings of an empirical study (...) on Swedish shareholder activism in the light of institutional sociology. The study demonstrates how the preferences and actions of investors are institutionally determined, and not only influenced by regulation and law, but also by moral obligations, societal expectations and relational ties. Thus, the study demonstrates the value of complementing economic explanations with more institutionally and organisationally oriented accounts, in order to better understand shareholder activism in particular, and corporate governance in general. (shrink)

This paper explores semi‐formal interactions between SRI‐investors that take the governance route rather than deploy a best‐in‐class logic or exclusionary screening. On the basis of a stakeholder typology of the investor and of the chosen topic of interaction, namely compliance with the core ILO labour conventions, the paper formulates 10 expectations about management reactions to the concerns raised by investors. These expectations cover responsiveness, acknowledgment of positions and general attitude. The expectations are then related to the factual discourse by management (...) responding to such concerns raised by investors. Based on data obtained from the Portfolio21‐correspondence, which is a joint initiative of European investors, it is found that management is very willing to discuss cases but at the same time denies the truth‐value of the allegations. Here, the problem of information asymmetry comes to the fore. (shrink)

In the wake of recent corporate scandals, this paper traces the growing power of pension funds to provide managerial oversight of the firms they hold in their investment portfolios. Increasingly pension funds are exercising their legitimate rights as owners to raise the corporate governance standards of the firms they invest in. Within corporate governance generally, pension funds are shifting their attention away from managerial accountability and toward measures that increase transparency in firm-level decision-making. Pension funds use transparency to ensure that (...) shareholders are the primary interest being served by the firm. Transparency not only aligns managers and owners, it also raises issues of firm behaviour that allow other stakeholders to engage the corporation more broadly. I contend that secrecy is economically inefficient. When organizations are opaque and interests are secret, decision-making can and does distort efficiency. I examine recent pension fund corporate governance campaigns with particular reference to the California Public Employees Retirement System. (shrink)

This paper argues that research on the business case for corporate social responsibility (CSR) must account for the path dependent nature of firm-stakeholderrelations, and develops the construct of stakeholder influence capacity (SIC) to fill this void. SIC helps to explain why the effects of CSR on corporate financial performance (CFP) vary across firms and across time, therein providing a missing link in the study of the business case. This paper distinguishes CSR from related and confounded corporate resource allocations and from (...) corporate social performance (CSP), then incorporates SIC into a model that explains how acts of CSR are transformed into CFP through stakeholder relationships. This paper also develops a set of propositions to aid future research on the contingencies that produce variable financial returns to investments in CSR. (shrink)

In this article, we document the growing influence of non-governmental organizations (NGOs) in the realm of socially responsible investing (SRI). Drawing from ethical and economic perspectives on stakeholder management and agency theory, we develop a framework to understand how and when NGOs will be most influential in shaping the ethical and social responsibility orientations of business using the emergence of SRI as the primary influencing vehicle. We find that NGOs have opportunities to influence corporate conduct via direct, indirect, and interactive (...) influences on the investment community, and that the overall influence of NGOs as major actors in socially responsible investment is growing, with attendant consequences for corporate strategy, governance, and social performance. (shrink)

Ethical investing is all the rage. Unfortunately, excitement about it has outpaced plausible philosophical discussions. This article asks and answers two questions: “What counts as investment?”, and “What moral choices do investors have?”. I answer the first question broadly. Investment is pervasive in our economy, and by participating we share responsibility for corporate practices. These facts lead to an “austere conclusion”: short of outright withdrawal from the standard forms of investment, we have little hope of avoiding participation in immoral activities. (...) Thus we must withdraw. Fortunately, the answer to the second question mitigates this disturbing result. Under certain circumstances, shareholder activism aimed at moral goals is a valuable way to participate in a deeply flawed system. By demonstrating the pervasiveness of investment and analogies with consumption and democratic political participation, the conclusions of this paper illuminate not only the ethics of investment but a more-general problem of individual responsibility in complex institutions. The paper is informative both for its applicability to these latter questions, and for its demonstration that investment is not merely a side-topic for business ethics texts, but rather a central problem of modern market societies. (shrink)

An important goal of ethical investment is to influence companies to improve their ethical and environmental performance. The principal means that many ethical funds employ is passive market signalling, which may not, on its own, have a significant effect. A much more promising approach may be active engagement. This paper reports on a questionnaire study of a sample of 1146 ethical investors in order to assess whether U.K. ethical investors would support more activist ethical investment and whether they would be (...) prepared to invest in companies which are failing ethically in order to do so. The results show general support for the current practice of passive signalling accompanied by "soft" engagement in the form of lobbying and the development of dialogue in order to improve corporate practice. The "harder" options of investing in companies that err in order to change them is, however, favoured by consistent minorities. (shrink)

Responds to the article by Brad Brown and Susan Perry in the August 1995 issue of `Business & Society' periodical on the measure of corporate social responsibility (CSP).