Shareholder Activism Research Articles

ESG, corporate piracy and Coasian contracting efficiency

AbstractEnvironmental, Social and Governance activism entails a subtle form of corporate piracy. It manifests in opportunistic backdoor attempts to convert firms that were incorporated to advance shareholders' pecuniary interests into firms that sacrifice pecuniary benefits to advance a social/political agenda favoured by a subset of activist shareholders. These surreptitious property rights encroachments raise an important issue: How should governance architecture (laws and charters) be structured and enforced to deal with shareholder disagreements and the resource dissipation (losses) that results therefrom? I address this issue using basic contracting efficiency principles of property rights economics traceable to Coase and to Alchian and Demsetz.

Climate change on the board: navigating directors’ duties

ABSTRACT A noteworthy trend within the surge in corporate climate litigation is the increasing focus on personal responsibility of corporate directors. In 2023, ClientEarth commenced a derivative claim against Shell and its directors in the English courts, arguing that those directors were in breach of their directors' duties under the Companies Act 2006. This article analyses the claimant's arguments, examines the basis upon which the court dismissed the claim and identifies the procedural challenges that are likely to be faced by future claimants in commencing similar claims. In light of the rising trend in shareholder activism, coupled with the ever-increasing regulatory requirements to strengthen corporate human rights and environmental performance, the article anticipates further attempts to bring derivative claims against directors for failing to take action to address climate change risks. It provides suggestions for the sorts of arguments that may have greater prospects of succeeding before the English courts.

Corporate social responsibility in the age of activist directorships

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.

The Visibility of Climate‐Related Disclosures by Large Australian Companies

Mobilising the work of Brighenti (2007), we assess the visibility of climate‐related disclosures across different reporting venues and sectors for the 2022 reporting period. We do so by analysing the content of the corporate reports of 28 ASX50 companies. This is supplemented by articles published in the Australian media and on prominent activist investor websites. We find that physical climate risks are often under‐reported or superficially addressed in company reports, whereas transition opportunities related to a low‐carbon economy are more frequently disclosed. This discrepancy suggests a pattern of selective disclosure emphasising more favourable outcomes and potentially obscuring the full spectrum of climate‐related risks and opportunities. In contrast, transition risks are supra‐visible because of the attention from media and activist investors—particularly in the energy and materials sectors. Our results reflect concerns raised by regulators with regard to greenhushing (the withholding of information) of physical and transition risks and greenwashing (exaggerated claims) of transition opportunities. We also find inconsistencies in reporting practice, with implications for comparability and the faithful representation of climate‐related information.

Activist investor aims at Air Products

Activist investor aims at Air Products

Shareholder Activism and the Deterrence Effect of Democratic Politician Shareholders

Shareholder Activism and the Deterrence Effect of Democratic Politician Shareholders

The composition of listed family firm boards in South Africa: Alignment to best practices and governance codes

Purpose: As elsewhere in the world, family firms (FFs) play a critical role in the South African economy. There is, however, scant research on how, if at all, listed South African FFs differ from their non-family counterparts concerning board composition and independence. The purpose of this study was to address this knowledge gap by investigating director and chair independence, chair-chief executive officer (CEO) role duality, board race and gender diversity, as well as board rotation at FFs listed on the Johannesburg Stock Exchange (JSE) over the period 2006 to 2022. The study was informed by the agency, socioemotional wealth, and stewardship theories.Design/methodology/approach: Data were collected on 753 directors who served on the boards of 37 JSE-listed FFs. Data sources included Bloomberg and the FFs’ integrated reports and websites. Data were analysed by examining trends in the considered variables over time.Findings/results: While family involvement at board level remained relatively constant, considerably fewer family members served as board chairs and CEOs towards the end of the research period. Board independence increased significantly over the research period.Practical implications: Shareholder activists’ requests for improved board governance of JSE-listed FFs seem justified. Activists should, however, also consider the benefits of family stewardship when evaluating director and chair independence in these firms. This study also identifies practical implications for nomination committees and investor education.Originality/value: The use of multiple theoretical lenses provides a balanced view of board governance at JSE-listed FFs. The study contributes to the scant body of knowledge on board composition and independence in listed FFs in South Africa, which will enable future FF research.

Shareholder Activism and Societal Challenges

Shareholder Activism and Societal Challenges

Shareholder Activism from a System’s View: How the Media and Regulators can Facilitate the Campaigns

Shareholder Activism from a System’s View: How the Media and Regulators can Facilitate the Campaigns

Corporate Governance Evaluation and Shareholder Activism: An Institutional Gatekeeping Perspective

Corporate Governance Evaluation and Shareholder Activism: An Institutional Gatekeeping Perspective

Shareholder Activism, Corporate Social Irresponsibility, and Obfuscation

Shareholder Activism, Corporate Social Irresponsibility, and Obfuscation

Unintended Consequences of Shareholder Activism: A Socio-Cognitive Stakeholder Theory View

Unintended Consequences of Shareholder Activism: A Socio-Cognitive Stakeholder Theory View

The Influence of Shareholder Activism on Boards

The Influence of Shareholder Activism on Boards

Retail investor activism and corporate environmental investments: evidence from green attention

Retail investor activism and corporate environmental investments: evidence from green attention

Voluntary disclosures by activist investors: the role of activist expectations*

Activist investors in a firm often voluntarily release information about their governance intentions to the public. Voluntary disclosure theory suggests that an activist investor will disclose when she expects other investors to respond positively and support her in upcoming corporate control contests. We find that activists’ disclosures are accompanied by positive abnormal returns, reductions in bid-ask spreads, and increases in future earnings relative to similar targets without voluntary activist disclosures. Disclosures by activists who demand a board seat (the most common demand) have the highest announcement returns, and disclosers also win proxy contests and directorships more frequently than non-disclosers. These findings suggest that the activist’s beliefs about investor response in both pricing and voting are an important driver of her disclosure choice.

Controlling non-controlling shareholders: The case of effective control

Abstract One of the most important developments underlying capital markets in recent years is the increase in the influence of activist minority shareholders. In a company without a controlling shareholder, dominant and activist shareholders, who hold only a low proportion of the company’s shares, can influence and even tip the scales in the decisions made and direct the company’s business. The legal system therefore imposes a fiduciary duty not only on controlling shareholders but also on those with effective control. Alongside the obligation, however, the absence of a clear and explicit definition of the concepts of effective power and effective control stands out. The Article empirically analyzes key court decisions litigated under Delaware law and finds that only two explanatory variables significantly explain court decisions in cases where the question of effective control arises. It therefore proposes a test for estimating shareholders’ effective power borrowed from the field of cooperative game theory. The test is based on the Shapley Value and Shapley and Shubik’s Power Index. The Article presents its application to decisions made at shareholders’ meetings to estimate the effective power of activist minority shareholders in various decisions. This test is simple to operate, objectively examines the situation based on the factual system that existed at the time the decision was made, and is not limited to specific ownership structures, particular markets, or current times. Adoption of the test is expected to increase the legal certainty regarding the imposition of duties on activist minority shareholders with effective control, thereby reducing the agency costs created as a result of the gap between their formal share in the corporation and their effective power.

The Dynamics of Corporate Social Responsibility (CSR) in Shareholder Activism and Cross-Cultural Management

The Dynamics of Corporate Social Responsibility (CSR) in Shareholder Activism and Cross-Cultural Management

Shrinking the 13D disclosure window will benefit non-activist investors

PurposeThis study aims to examine the Securities and Exchange Commission’s final rule in Modernization of Beneficial Ownership Reporting, which reduced the time for significant public company shareholders to file Schedule 13D (effective February 5, 2024). The authors corroborate prior results under the historic 10-day maximum reporting regime and provide updated academic analysis regarding how the five-day deadline between the “triggering” event, accumulating 5% of the outstanding shares and public disclosure of that event will affect abnormal returns.Design/methodology/approachThis empirical archival study uses publicly available data.FindingsThe analyses show that changing from a 10-day to a 5-day Schedule 13 disclosure window will reduce activist investors’ opportunity to profit by legally delaying the filing of Schedule 13D. These excess returns for delay exist regardless of the profitability or size of the target firm or the shareholder’s disclosed reason for filing. The authors conclude that accelerating the timing of the disclosure window is an improvement that is in the best interest of the general investing public.Originality/valueTo the authors’ knowledge, this is the only academic study of Schedule 13D filings to include the postpandemic period. As such, the authors establish an updated “baseline projection” for expectations regarding how the Modernization final rule will impact activist investors and stock returns under a five-day reporting regime. In addition, the authors measure and test abnormal returns after considering differences between “triggering” events and filing dates of Schedule 13Ds in the sample rather than grouping all filings. This approach allows the authors to account for the time difference between the triggering event and the filing date.

Stewardship code adoption and firms’ decisions on treasury shares: Evidence from South Korea

This study examines the relationship between institutional blockholders’ stewardship code adoption (the stewardship code adoption) and firms’ treasury-share-related decisions. Using the data of firms listed on the Korea Exchange from 2017 to 2019, this study finds that the stewardship code adoption has a negative relationship with share repurchase and a positive relationship with treasury share cancellation, and that the negative relationship between the stewardship code adoption and share repurchase is more pronounced for institutional blockholders with long-term investment stance. In addition, this study further finds that the stewardship code adoption can affect the timing of firms’ decisions on treasury share cancellation, reducing the risk from long-term holding or opportunistic disposition of treasury shares. The results from this study implies that the increase in shareholder activism triggered by the stewardship code adoption is to enhance shareholder value.

CEO gender and responses to shareholder activism

AbstractRecent literature finds that firms led by female CEOs are more likely to be targeted by activist shareholders and that female CEOs are more likely to cooperate with activist shareholders' requests. Our study complements this literature by using two controlled experiments and a series of semi‐structured interviews with CEOs and CFOs to investigate how a CEO's response to shareholder activism influences investors' reactions and whether these reactions differ depending on the gender of the CEO or on how their response is explained. In the first experiment, we find that investors evaluate a firm as less attractive when a female CEO uses an uncooperative response rather than a cooperative response to shareholder activism, absent any explanation for the CEO's response. Conversely, investors evaluate a firm as less attractive when a male CEO uses a cooperative response rather than an uncooperative response. In the second experiment, where there is an added explanation for the CEO response, we find that investors react more positively to a female CEO's uncooperative response when the explanation is more communal (vs. agentic). Our interviews with CEOs and CFOs provide insights into how the gender of firms' leadership may play a role when activist shareholders target firms. Our results collectively suggest that investors rely on gender stereotypes when evaluating the responses of male and female executives to shareholder activism and that these evaluations affect their investment judgments. Our results also suggest a potential alternative explanation for the finding that female CEOs are more likely to cooperate with activist shareholders than are male CEOs. Rather than inherent differences in the management styles of male and female CEOs, responses to activist shareholders may be driven, at least in part, by managers anticipating that they will be penalized by investors for deviating from gender‐stereotypical behavior.