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Corporate Responses to Shareholder Activists: Considering the Dialogue Alternative

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Abstract

This empirical study examines corporate responses to activist shareholder groups filing social-policy shareholder resolutions. Using resource dependency theory as our conceptual framing, we identify some of the drivers of corporate responses to shareholder activists. This study departs from previous studies by including a fourth possible corporate response, engaging in dialogue. Dialogue, an alternative to shareholder resolutions filed by activists, is a process in which corporations and activist shareholder groups mutually agree to engage in ongoing negotiations to deal with social issues. Based on a unique dataset of resolutions filed by member organizations of the Interfaith Center on Corporate Responsibility from 2002 to 2005 and the outcomes of these resolutions, our analysis finds that corporate managers are more likely to engage in dialogue with shareholder activists when the firm is larger, is more responsive to stakeholders, the CEO is the board chair, and the firm has a relatively lower percentage of institutional investors.

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Notes

  1. In the United States, the shares owned by the activists give them the right to participate in annual meetings, the right to submit resolutions, and all other rights given to shareholders, subject to state incorporation statutes and the rules of the US Securities and Exchange Commission. In order to be able to file a 500-word shareholder resolution under Rule 14a-8 of the Securities Exchange Act (as amended) asking the corporation to undertake some action, stockholders (or a group of stockholders filing as one group) must own more than $2,000 of a corporation’s stock for at least 1 year.

  2. According to Lawrence and Weber (2011), stakeholders who interact with firms through the market mechanism, such as shareholders, customers, and employees, are called primary stakeholders, and non-market stakeholders who interact with firms outside of market transactions are identified as secondary stakeholders. Secondary stakeholders include members of local communities, governments at various levels, non-governmental organizations, the media, the natural environment, etc.

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Authors and Affiliations

  1. Marquette University, Milwaukee, WI, 53233, USA

    Kathleen Rehbein

  2. University of New Mexico, Albuquerque, NM, 87131, USA

    Jeanne M. Logsdon & Harry J. Van Buren III

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  1. Kathleen Rehbein
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  2. Jeanne M. Logsdon
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  3. Harry J. Van Buren III
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Correspondence to Jeanne M. Logsdon.

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Rehbein, K., Logsdon, J.M. & Van Buren, H.J. Corporate Responses to Shareholder Activists: Considering the Dialogue Alternative. J Bus Ethics 112, 137–154 (2013). https://doi.org/10.1007/s10551-012-1237-2

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  • DOI: https://doi.org/10.1007/s10551-012-1237-2

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