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: 
508/2017

Date posted :

May 22 2017

Last revised :

July 03 2018
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Keywords

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

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 unions representing workers, as stakeholders, are not aligned with shareholders.

Limiting shareholder power may mitigate “special interest” activism but can also exacerbate managerial agency problems. We examine the director labor market in two different settings, majority approved and withdrawn shareholder proposals, where conflicted activists arguably have additional leverage over management, and find evidence that corporate governance can selectively mitigate the negative influence that conflicted activists have over firms without stifling all influence of low-cost activists.

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Authors

Professor
Real name:
Tracie Woidtke
The University of Tennessee