Governing Through Votes: Shareholder Responses to Major Environmental and Social Incidents

Abstract

We investigate shareholder reactions to major environmental and social (ES) incidents by examining voting behavior in director elections. Using a comprehensive dataset of U.S. firms, we find that directors of companies experiencing significant ES incidents face an average 9.8% more negative votes, with climate-related incidents prompting the most pronounced dissent. Female directors, who typically enjoy higher support, experience greater losses in shareholder backing following ES incidents. Despite this, negative voting alone does not substantially improve firm sustainability performance. However, boards that respond by implementing ES-linked executive compensation or forcing CEO turnover demonstrate significant enhancements in ES practices. Our findings contribute to the understanding of the governance role of shareholders in holding directors accountable for ES oversight and highlight the conditions under which shareholder activism can effectively influence corporate sustainability.