Corporate social responsibility in the age of activist directorships

Abstract

AbstractResearch SummaryWe draw attention to a rapidly emerging phenomenon—the appointment of activist‐nominated directors to boards—that could have consequences for stakeholders. Although appointing an activist director tends to improve firm value for shareholders, we uncover a hidden externality wherein it also yields increased reports of stakeholder harm. We introduce activist directors to the management literature and examine an array of considerations with a view toward launching a stream of literature that explores nuanced forms of activist directorships, intemporal trade‐offs in their influence, and the breadth and depth of their behavioral consequences for firms.Managerial SummaryHistorically, activist shareholders have primarily tried to affect managerial decision‐making from their vantage point as outsiders. Today, activist investors are going further by demanding their own seats at the boardroom table. We examine the consequences of these activist directorships, finding that they are associated with increased reports of stakeholder harm. Supplemental analyses show that, while activist directors bring immediate benefits to shareholders, they appear to impose a managerial myopia wherein executives become less inclined to make long‐term investments. Moreover, the adverse effects on stakeholder harm are most profound when a director is a delegate, meaning they work directly for an activist investor, as opposed to a trustee, who is appointed by, but does not work for, an activist investor.