Some are More Equal: The Politics of Shareholder Activism

Abstract

Shareholder activism is an exercise of power, sometime benign, sometimes threatening to the interests of corporate management, boards and other shareholders. The complexity of these combinations helps to understand how difficult it is for directors to operate in shareholders' interest. What we see, particularly in relation to the growth of hedge-fund activism, is greater dispersion of shareholder interests and growing questions about the legitimacy of how those interests are acted out in the political landscape of corporation governance. This paper offers a framework to examine the stance that shareholders take when exercising - or not exercising - their power. Anticipating the expression of shareholder power involves assessing their intentions along three dimensions: their attitude towards an individual stock (buy-hold-sell), their approach to activism (docile, "walkers", or activist) and their investment horizons (long-term, short-term, or ones it calls "perverse", where the economic interest of the shareholder doesn't coincide with its holdings).

Keywords: Corporate governance, shareholder activism, legitimacy, hedge funds, power, politics

JEL Classification: A10, G10, G34, L10, L20, B10, B14