A Report on Corporate Governance and Shareholder Activism

September 21, 2012

Activist shareholders, or owners of equity capital, are more pronounced in their efforts to use their voting power to change corporate behavior. With the economy still lagging and the memory of the Occupy Wall Street movement fresh in the national consciousness, investors are using their influence to rein in executive pay and a corporation's political participation to promote responsible practices, say James R. Copland, Yevgeniy Feyman and Margaret O'Keefe of the Manhattan Institute.

A report by the Manhattan Institute's Proxy Monitor assesses the corporate proxy season -- the time of the year when shareholders vote on corporate business at the companies' annual meeting. It finds:

  • A small group of shareholders continue to sponsor a majority of the proposals: 36 percent of the proposals were sponsored by the labor-union pension funds, 31 percent by three individual investors, and 22 percent by "socially responsible" investing purposes.
  • Only 1 percent of the proposals were sponsored by unaffiliated institutional investors.
  • Furthermore, there were increased proposals to limit a corporation's political spending.
  • Additionally, labor-union pension funds' sponsorship was unrelated to shareholder return and instead concentrated on union-organizing activities and other labor objectives.
  • Moreover, the number of shareholder proposals receiving majority support fell in 2012, as only 6 percent of the proposals had majority backing.
  • Finally, the recommendations of the proxy advisory firm Institutional Shareholder Services have a dominating 61 percent share in the market, and thus increase voting support for a proposal by 15 percent.

The report shows that shareholder-proposals do little to influence corporate behavior in a manner that improves share value. This is primarily because a small number of investors take action that influences corporate behavior only in a manner that benefits them, not the average diversified investor.

Source: James R. Copland, Yevgeniy Feyman and Margaret O'Keefe, "A Report on Corporate Governance and Shareholder Activism," Manhattan Institute, September 2012.

 

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