The Costs and Benefits of Shareholder Democracy: Gadflies and Low-Cost Activism

The Costs and Benefits of Shareholder Democracy: Gadflies and Low-Cost Activism

Nickolay Gantchev, Mariassunta Giannetti

Series number :

Serial Number: 
586/2018

Date posted :

December 20 2018

Last revised :

June 03 2020
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Keywords

  • shareholder activism • 
  • shareholder proposals • 
  • Shareholder voting • 
  • Corporate governance

We show that there is cross-sectional variation in the quality of shareholder proposals. On average, the proposals submitted by the most active individual sponsors are less likely to be supported by a majority of votes, but they may pass if shareholders mistakenly support them and may even be implemented due to directors’ career concerns.

While gadflies’ proposals destroy shareholder value if they pass, shareholder proposals on average are value-enhancing in firms with more informed shareholders. Our results suggest that the voting process should be reformed, but that shareholders’ ability to submit proposals should not necessarily be restricted.

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