We develop a theory of how the intersection of business goals and the pursuit of ?higher purpose?? something that produces a non-pecuniary social benefit valued by the principal and the agent ? affects economic outcomes. Two types of principals ? those pursuing only wealth maximization and those pursuing both wealth and a higher purpose ? are considered.
These are typically viewed as competing approaches to running organizations. However, the theory we develop, which shows that the pursuit of higher-purpose projects reduces labor costs and increases capital investments, highlights a potential complementarity between the principals pursuing a higher purpose and those exclusively pursuing wealth. The complementarity arises because the pursuit of higher-purpose projects by others can relax budget constraints for wealth-maximizing principals, and the presence of purely-wealth maximizing principals may be essential for the higher-purpose-pursuing principals to obtain external financing. The absence of either type of principal may lead to a market breakdown involving no projects being undertaken.
A set of policy experiments regarding binding say-on-pay in Switzerland sheds light on the hitherto mostly theoretical argument that shareholders may prefer to have limits on their own power. The empirical evidence suggests a trade-off: Binding...Read more
Despite the increasing importance of shareholder voting, regulators have paid little attention to the rights of retail investors who own approximately 30% of publicly traded companies but who vote less than 30% of their shares. A substantial...Read more
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...Read more
This paper looks at shareholder activism from the perspective of the revision of the EU Shareholder Rights Directive, which was approved by the European Parliament on 14 March 2017. The main findings are as follows.