Can Strong Corporate Governance Selectively Mitigate the Negative Influence of 'Special Interest' Shareholder Activists? Evidence from the Labor Market for Directors

Can Strong Corporate Governance Selectively Mitigate the Negative Influence of 'Special Interest' Shareholder Activists? Evidence from the Labor Market for Directors

Diane Del Guercio, Tracie Woidtke

Series number :

Serial Number: 
508/2016

Date posted :

May 22 2017

Last revised :

June 01 2017
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Keywords

  • shareholder activism • 
  • market for directors • 
  • public pension funds • 
  • labor unions

Empowering shareholders can mitigate managerial agency problems but also empower “special interest” activists. Union and public pension funds, the most prolific institutional activists employing low-cost targeting methods, are often accused of pursuing private benefits.

Extant literature finds that workers, and unions representing them, as stakeholders are not aligned with shareholders.

Thus, activists who are also stakeholders of targeted firms have potential conflicts of interest. We find evidence the director labor market can selectively mitigate the negative influence that conflicted activists have over firms, especially when directors are younger and have greater career concerns, without stifling all influence of low-cost activists.

Authors

Professor
Real name:
Tracie Woidtke
The University of Tennessee