Funds Investing

Underlying the policy debate about merits of institutional activism is the empirical question: Does such activism have a significant impact on corporations that are the target of that activism? The short answer is that it’s unclear.

In an attempt to provide an intermediate-level answer, let us review a few points that emerge from this debate on the impact of institutional activism. To begin, the studies do not usually include proxy fights or takeover bids since these are rare events for institutional investors. In addition, these studies are all premised on the efficient markets theory, so they assume that the impact from shareholder activism can be measured by looking at a change in stock price after a specific event, such as a pension fund’s submission of a stockholder proposal.

These economic studies tend to show no or little positive price effects from proposals to change general governance procedures, such as the introduction of confidential voting or the appointment of an external board chairman (separate from the CEO). Read the rest of this entry »

The presence of dominant local shareholders characterizes the governance structure of many foreign companies.The dominant shareholders typically seek to preserve their influence by relying on a variety of structures designed to frustrate the exercise of rights by minority shareholders and “outside” investors.

France, for example, has a strong tradition of government involvement in the economy. Accordingly, the state maintains several devices to influence corporate decision making, which undermine minority shareholder rights. Read the rest of this entry »

In addition to the influence of dominant local shareholders, the legal relationship between a company board and its shareholders may limit the rights of the minority shareholders. In general, under U.S. state corporate law, a company’s directors owe a fiduciary duty primarily to its shareholders. By contrast, in many non-U.S. legal systems, the board may be required to consider the interests of other stakeholders in the enterprise, including the company’s labor unions and local suppliers, as well as community groups and local government.The interests of these groups may, on occasion, come into conflict with the interests of minority shareholders. Read the rest of this entry »