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Shareholder Activism
Shareholder activism is the way in which shareholders can assert their power as owners of the company to influence its behaviour. Activism covers a broad spectrum of activities. Activism includes “voting with ones feet” (exit), private discussion or public communication with corporate boards and management, press campaigns, blogging and other e-ways of public “naming and shaming”, openly talking to other shareholders, putting forward shareholder resolutions, calling shareholder meetings and – ultimately - seeking to replace individual directors or the entire board.

In some cases shareholder activism is directed against other large shareholders, not against directors. Shareholder activism can be collaborative, in particular when it is conducted in private.

Shareholder activism is controversial. Proponents argue that companies with active and engaged shareholders are more likely to be successful in the long term than those that are left to do what they choose. Vigilant shareholders are said to play the role of fire alarms and their mere presence can alleviate managerial or boardroom complacency. When companies perform poorly, shareholders activists are said to play the role of fire brigades that bring about change and more quickly than would have been the case had the fire brigade been on strike.

Opponents say that "shareholder activism" is a euphemism for disruptive, uninformed, populist ranting or "take the money and run". In its extreme forms activism is said to be an extortion scheme that weakens strong companies. More fundamentally, there is disagreement about how much power shareholders should delegate to corporate boards and when direct shareholder action becomes necessary and on what terms. In some countries, organized labour is accused of using shareholder activism tactics as a capitalist tool in the class struggle.

Scientific research on shareholder activism started in the United States and has mostly focused on public activism by institutional investors in the late 1990s. The results are well documented in a number of literature surveys and not altogether encouraging: “A small number of American institutional investors … spend a trivial amount of money on overt activism efforts… Institutions achieve the effects on firm performance that one might expect from this level of effort - namely, not much.“ (Black 1998) “Most evidence indicates that shareholder activism can prompt small changes in target firms’ governance structures, but has negligible impact on share values and earnings“ (Karpoff 2001)

Shareholder activism is, of course, not confined to the United States and the latest research suggests that shareholder activism can be more successful in other parts of the world. At the same time, the nature of activism is changing, also in the United States. There is heightened interest in new activism players – like hedge funds – and new tactics they use, like derivatives dealing and stock lending.

The ECGI itself does not take a position on these matters. Rather, the purpose of the Institute is to generate research, stimulate debate and disseminate best practice. In these pages therefore, you will find links to proprietary ECGI research and other references to material on this important topic. They are continuously developed as new information becomes available.

Research Interests
The following ECGI Research members have research interest in this area (click name to see biography and contact details):
Julian Franks (London Business School) : Woochan Kim (Korea University Business School) : Randall Thomas (Vanderbilt University Law School and Owen School of Management) :

ECGI Working Papers
Shareholder Voting in an Age of Intermediary Capitalism Paul Edelman, Vanderbilt University Randall Thomas, Vanderbilt University and ECGI Robert Thompson, Georgetown University (ECGI Law Series 246/2014) March 2014
Agency Theory in Practice: A Qualitative Study of Hedge Fund Activism in Japan John Buchanan, University of Cambridge Dominic Heesang Chai, Seoul National University Simon Deakin, University of Cambridge and ECGI (ECGI Law Series 237/2014) February 2014
The Returns to Hedge Fund Activism: An International Study Marco Becht, UniversitÚ Libre de Bruxelles and ECGI Julian Franks, London Business School and ECGI Jeremy Grant, CM-CIC Securities Hannes Wagner, Bocconi University (ECGI Finance Series 402/2014) January 2014
Liquidity and Governance Kerry Back, Rice University, Houston - Jones Graduate School of Business Tao Li, City University of Hong Kong Alexander Ljungqvist, New York University - Stern School of Business and ECGI (ECGI Finance Series 388/2013) November 2013
Blockholders and Corporate Governance Alex Edmans, London Business School - Institute of Finance and Accounting; University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and ECGI (ECGI Finance Series 385/2013) October 2013
Institutional Investor Activism in a Context of Concentrated Ownership and High Private Benefits of Control: the Case of Italy Massimo Belcredi, UniversitÓ Cattolica del Sacro Cuore Luca Enriques, LUISS Guido Carli University and ECGI (ECGI Law Series 225/2013) January 2014
Boards in Europe - Accountability and Convergence Paul Davies, University of Oxford and ECGI, and Klaus Hopt, Max Planck Institute for Comparative and International Private Law and ECGI (ECGI Law Series 205/2013) May 2013
Hedge Fund Activism Canadian Style Brian Cheffins, University of Cambridge and ECGI (ECGI Law Series 202/2013) March 2013
Shareholder Rights and Shareholder Activism: The Role of the General Meeting of Shareholders Christoph Van der Elst, Department of Business Law Tilburg University, Financial Law Institute Ghent University and ECGI (ECGI Law Series 188/2012) August 2012
The History of Corporate Governance Brian Cheffins, University of Cambridge and ECGI (ECGI Law Series 184/2012) January 2012
The Effect of Liquidity on Governance Alex Edmans, University of Pennsylvania - The Wharton School, NBER and ECGI, Vivian W. Fang, Rutgers University Emanuel Zur, City University of New York - Baruch College (ECGI Finance Series 319/2011) October 2011
Revisiting shareholder activism at AGMs: Voting determinants of large and small shareholders Christoph Van der Elst, Tilburg Law School, Ghent University and ECGI (ECGI Finance Series 311/2011) July 2011
Institutional Investors as Minority Shareholders Assaf Hamdani, The Hebrew University and ECGI, Yishay Yafeh, The Hebrew University, CEPR and ECGI (ECGI Law Series 172/2010) November 2010
Foreign Investor Activism in Japan: The First Ten Years Yasushi Hamao, University of Southern California, Kenji Kutsuna, Kobe University, Pedro Matos, University of Southern California (ECGI Finance Series 290/2010) June 2010
Hedge Fund Activism in Europe Marco Becht, ECARES, UniversitÚ Libre de Bruxelles, CEPR and ECGI, Julian Franks, London Business School, CEPR and ECGI, Jeremy Grant, University of Cambridge (ECGI Finance Series 283/2010) May 2010
Shareholder Activism through the Proxy Process Luc Renneboog, Tilburg University and ECGI, Peter Szilagyi University of Cambridge. (ECGI Finance Series 275/2010) March 2010
Subverting Shareholder Rights: Lessons from News Corp.'s Migration to Delaware Jennifer Hill, University of Sydney, Vanderbilt University and ECGI (ECGI Law Series 143/2010) March 2010
Does Governance Travel Around the World? Evidence from Institutional Investors Reena Aggarwal, Georgetown University, Isil Erel, Ohio State University, Miguel Ferreira, Universidade Nova de Lisboa and ECGI, Pedro Matos, University of Southern California (ECGI Finance Series 267/2010) January 2010
The Rise and Fall (?) of Shareholder Activism by Hedge Funds John Armour, University of Oxford and ECGI, Brian Cheffins, University of Cambridge and ECGI (ECGI Law Series 136/2009) September 2009
Shareholder Activism through Proxy Proposals: The European Perspective Peter Cziraki, Tilburg University, Luc Renneboog, Tilburg University and ECGI, Peter Szilagyi, Judge Business School ľ University of Cambridge (ECGI Finance Series 252/2009) June 2009
Behind the Scenes: The Corporate Governance Preferences of Institutional Investors Joseph McCahery, University of Amsterdam, Tilburg University and ECGI, Zacharias Sautner, University of Amsterdam, Laura Starks, University of Texas at Austin (ECGI Finance Series 235/2009) February 2009
Corporate Governance and Value Creation: Evidence from Private Equity Viral Acharya London Business School, NYU-Stern, CEPR and ECGI, Moritz Hahn, Ludwig Maximilians University Munich and Conor Kehoe,McKinsey & Company, Inc. (ECGI Finance Series 232/2009) January 2009
Embattled CEOs Marcel Kahan, New York University School of Law, Edward Rock, University of Pennsylvania (ECGI Law Series 116/2009) December 2008
Do UK institutional shareholders monitor their investee firms? Marc Goergen, University of Sheffield Management School and ECGI, Luc Renneboog, Tilburg University and ECGI, Chendi Zhang, University of Sheffield Management School (ECGI Finance Series 208/2008) April 2008
Hedge Fund Activism in the Enforcement of Bondholder Rights Marcel Kahan, New York University, Edward Rock, University of Pennsylvania Law School (ECGI Law Series 100/2008) March 2008
The Returns to Hedge Fund Activism Alon Brav, Duke University, Wei Jiang, Columbia University, Frank Partnoy, University of San Diego, Randall Thomas, Vanderbilt University (ECGI Law Series 098/2008) March 2008
Corporate Social Responsibility and Managerial Entrenchment Giovanni Cespa, CSEF, UniversitÓ di Salerno, and CEPR, Giacinta Cestone, CSEF, UniversitÓ di Salerno, CEPR, and ECGI. (ECGI Finance Series 157/2007) April 2007
The One Share - One Vote Debate: A Theoretical Perspective Mike Burkart, Stockholm School of Economics, CEPR, FMG and ECGI, Samuel Lee, Stockholm School of Economics. (ECGI Finance Series 176/2007) May 2007
Hedge Funds and Governance Targets William Bratton, Georgetown University Law Center and ECGI (ECGI Law Series 080/2007) February 2007
Hedge Fund Activism, Corporate Governance, and Firm Performance Alon Brav, Duke University, Wei Jiang, Columbia University, Frank Partnoy, University of San Diego, Randall Thomas, Vanderbilt University (ECGI Finance Series 139/2006) September 2006
Hedge Funds in Corporate Governance and Corporate Control Marcel Kahan, School of Law, New York University and Edward Rock, School of Law, University of Pennsylvania (ECGI Law Series 076/2006) July 2006
Hedge Fund Activism April Klein, Department of Accounting, Taxation & Business Law, New York University and Emanuel Zur, Leonard N. Stern School of Business, New York University (ECGI Finance Series 140/2006) September 2006
Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes U.K. Focus Fund Marco Becht, Free University of Brussels (VUB/ULB) - ECARES, and ECGI, Julian Franks, London Business School, CEPR and ECGI, Colin Mayer, Said Business School, University of Oxford, CEPR and ECGI, and Stefano Rossi, Stockholm School of Economics (ECGI Finance Series 138/2006) December 2006
Empty Voting and Hidden Ownership: Taxonomy, Implications, and Reforms Henry Hu, University of Texas Law School and Bernard Black, University of Texas at Austin - School of Law, McCombs School of Business, University of Texas at Austin and ECGI (ECGI Law Series 064/2006) updated April 2006
Board Models in Europe. Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France, and Italy Klaus Hopt, Max Planck Institute for Foreign Private and Private International Law, Hamburg & ECGI and Patrick C. Leyens, Max Planck Institute for Foreign Private and Private International Law, Hamburg (ECGI Law Series 018/2004) January 2004

Press Coverage

In a half-page in the Financial Times on 4 December 2006, drawing on the Clinical Study of the Hermes U.K. Focus Fund, Kate Burgess looks at the trend in the UK where activist investment managers who put direct pressure on companies to improve their performance deliver substantially higher returns.

See Activists moving into mainstream and Aggressive funds outperform stock market, claims study on (subscription required)

Activist Investors, Hedge Funds and Corporate Governance conference
Organised by the University of Amsterdam and Vanderbilt University, this conference took place on 8-9 March 2007 at the Hotel Grand, Amsterdam. See:
Programme and papers

Shareholder Activism in the United Kingdom conference
This conference, which was organised by the LBS Centre for Corporate Governance, the Journal of Applied Corporate Finance and the ECGI in February 2006, presented the first results of an independent study of shareholder activism in the UK. The study was co-authored by Professor Marco Becht, ECARES, Université Libre de Bruxelles, Professor Julian Franks, Centre for Corporate Governance, London Business School, Professor Colin Mayer, Said Business School, and Professor Stefano Rossi, Stockholm School of Economics. See:
The Conference programme

A short report on the Conference proceedings

Video recording of the proceedings
LBS Centre for Corporate Governance
Journal of Applied Corporate Finance report (Volume 18 Number 2 Spring 2006)

Surveys of available US evidence
Jonathan Karpoff (2001), The Impact of Shareholder Activism on Target Companies: A Survey of Empirical Findings
Gillan, Stuart L. and Starks, Laura T., "A Survey of Shareholder Activism: Motivation and Empirical Evidence" (1998).
Black, Bernard S., "Shareholder Activism and Corporate Governance in the United States" . As published in The New Palgrave Dictionary of Economics and the Law, vol. 3, pp. 459-465, 1998
Romano, Roberta, "Less Is More: Making Shareholder Activism A Valued Mechanism Of Corporate Governance" (May 14, 2000). Yale Law & Economics Research Paper No. 241; and Yale ICF Working Paper No. 00-10; Yale SOM Working Paper No. ICF - 00-10
Previous work on the UK
Black, Bernard S. and Coffee Jr., John C., "Hail Britannia?: Institutional Investor Behavior Under Limited Regulation" . As published in Michigan Law Review, Vol. 92, pp. 1997-2087 (1994)
Faccio M and M.A. Lasfer, 2000, Do Occupational Pension Funds Monitor Companies in which they Hold Large Stakes? Journal of Corporate Finance pp 6, 71-110.
Julian Franks, Colin Mayer and Luc Renneboog, Who Disciplines Management in Poorly Performing Companies?, Journal of Financial Intermediation, Volume 10, Issues 3-4, , July 2001, pp 209-248.

Any comments and suggestions for additional links and references are very welcome. Please click here to feedback these to the ECGI.

Alternatively, join in a discussion and online debate with academics and practitioners through the ECGI List.