Social and environmental shareholder resolutions: Investor activism and corporate compromises

Abstract

Purpose – Investor activism is the attempt by a dissident shareholder to alter firm behavior by filing a shareholder resolution with the firm. Faced with a shareholder resolution, management can either oppose it or attempt to negotiate a settlement. This study examines the factors that would cause a firm to adopt a compromise position with a dissent investor.

Methodology – A logistic regression is run in which the result of the shareholder resolution (whether or not a compromise has been researched) is a function of the topic of the resolution, the proposer of the resolution, and the firm’s history of compromising on previous shareholder resolutions. The model is tested using a sample of 762 shareholder resolutions filed in Canada over an eleven-year period from 2000 to 2010.

Results – The results indicate that compromise is more likely to occur when the shareholder resolution addresses an environmental or social responsibility issue, and when the dissident shareholder is an investment or mutual fund.

Practical implications – Institutional and mutual funds control the financial resources necessary for the firm’s survival. As such, firms are more likely to compromise when these powerful investors put forward shareholder resolutions. Furthermore, firms are more likely to compromise when the resolution does not address the core activities of the firm.

Originality – This study examines the factors that encourage Canadian firms to adopt a compromising strategy when confronted by dissident shareholders.

Citation

Dunn, P. (2013), "Social and environmental shareholder resolutions: Investor activism and corporate compromises", Institutional Investors’ Power to Change Corporate Behavior: International Perspectives (Critical Studies on Corporate Responsibility, Governance and Sustainability, Vol. 5), Emerald Group Publishing Limited, Leeds, pp. 127-148. https://doi.org/10.1108/S2043-9059(2013)0000005014