Skip to main content
SpringerLink
Log in

The corporate response to shareholder activism

  • Article
  • Published:
ERA Forum Aims and scope

Abstract

Shareholders activism is no longer a typical American phenomenon. Many European companies have become familiar with shareholder actions too. Shareholders are making use of their rights and act against management deficiencies. It is the duty of the board of directors to guard against these actions of shareholders. The response lies not in raising protective shields but in the development of risk management systems incorporating shareholder activism risks.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. These tweets can be found at http://blogs.wsj.com/moneybeat/2013/08/13/carl-icahn-we-currently-have-a-large-position-in-apple/, last consulted February 10, 2014. Both protagonists settled their dispute and claimed victory because Apple did return cash to its shareholders although not as much as Icahn required. In the meantime Icahn is addressing eBay and he orders the divestment of PayPal (The Economist, “Anything you can do, Icahn can do better”, 15 February 2014, pp. 51–52).

  2. The recent study of Becht, Frank, Grants and Wagner identified 22 % of all cases of activism by hedge funds as taking place in Europe. The large majority of the European cases of shareholder activism have occurred in the United Kingdom (9 %), with German companies providing more than 3 % of all cases. (M. Becht, J. Franks, J. Grant and H. Wagner, The Returns to Hedge Fund Activism: An International Study, ECGI Finance Working Paper nr. 402/2014, January 2014, Table 1, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2376271, last consulted 15 February 2014).

  3. Vivendi, Press release of November 26 2013a, http://www.vivendi.com/presse/communiques-de-presse/projet-de-scission-du-groupe-valide-vincent-bollore-president-de-vivendi-apres-la-scission-arnaud-de-puyfontaine-directeur-general-des-activites-medias-et-contenus-composition-du-directoire/ (last consulted February 5, 2014).

  4. There were other close connections between the two. For a brief description on their relationships see http://www.glasslewis.com/blog/the-rise-of-successful-shareholder-activism-in-germany/ (last consulted 8 February 2014).

  5. The motions can be found at http://www.gsw.ag/~/media/Files/G/GSW-IR-V2/hv_2013/HV_TO_Ergaenzung_deutsch_korrigiert.pdfm, last consulted 8 February 2014.

  6. GSW, Abstimmungsergebnisse 2013, http://www.gsw.ag/~/media/Files/G/GSW-IR-V2/hv_2013/HV2013_abstimmungsergebnisse.pdf, last consulted 8 February 2014.

  7. IVG, Pressemitteilung 25 June 2013, https://www.gsw.de/unternehmen/pressezentrum/ (last consulted 8 February 2014).

  8. Telecom Italia, Details of votes on removal of directors are to be found at http://www.telecomitalia.com/content/dam/telecomitalia/en/archive/documents/investors/AGM_and_Meetings/2013/Rendiconto-votazioni-dicembre-2013-eng.pdf (last consulted 9 February 2014).

  9. According to the study of Becht and Mayer the median voting block of the largest shareholder in Austria, Belgium, Germany and Italy was more than 50 % (data for 1996) while this block was only 9.9 % in the United Kingdom, 5.4 % for New York Stock Exchange companies and 8.6 % for Nasdaq companies (M. Becht and C. Mayer, “Introduction”, in The Control of Corporate Europe, F. Barca and M. Becht (eds.), Oxford, OUP, 2001, p. 19).

  10. Van der Elst [25]; author’s own research based on companies’ annual reports and websites (May 2013).

  11. Authors’ author’s own research based on companies’ annual reports and websites (May 2013), on file with the author.

  12. Van der Elst [25]; author’s own research based on the companies’ annual reports and websites of these companies (May 2013).

  13. Thomas, Van der Elst [22].

  14. In 2007, the average voting block of a sample of United Kingdom companies was 19.3 percent of the votes. C. Van der Elst, Shareholder Mobility in Five European Countries, in Corporate Management: Shareholder Rights, L. Padmavathi (ed.), Punjagutta, Icfai University Press, 2009, 211. It should be noted that the sample of United Kingdom companies is significantly larger. In the largest companies, ownership concentration levels are smaller.

  15. Van der Elst [23].

  16. Katelouzou [14].

  17. Not least due to the behaviour of corporate directors themselves. According to a study of PWC, mentioned by Activist Insight, a large majority of United States company directors were unwilling to pay more attention to their shareholders. 35 % were willing to communicate more with institutional investors, and only 5 %. With individual investors According to the survey, directors dislike the discussion of topics like nominations, share buy backs, strategy etc., in which activists are in particularly interested (Activist Insight, Activist Monthly, November 2013, pp. 1–2).

  18. Becht, Franks, Mayer, Rossi [2].

  19. Hendry, Sanderson, Barker, Roberts [12].

  20. ECGI, ecgi.org/activism, last consulted 25 January 2014.

  21. Klein, Zur [15]. These disclosure requirements contain more information than the disclosure requirements that in other areas of the world are applicable if a 5 % threshold is passed. For a comparative analysis see E. Vermeulen, Beneficial ownership and control: a comparative study: Disclosure, information and enforcement, Corporate governance roundtable, 2012, pp. 17–28 (http://www.oecd.org/daf/ca/corporategovernanceprinciples/50068886.pdf, last accessed 20 February 2014).

  22. Table 1B in Brav, Jiang, Partnoy, Thomas [3].

  23. This division is vague as making a shareholder proposal is a formal action which will be voted on at the general meeting while voicing public criticism and demanding change is not.

  24. This class of activism is also rather vague as it does not disclose how publicity concerning the threat was provided (via a formal technique or an informal announcement).

  25. Girard [10].

  26. Association de défense des actionnaires minoritaires (ADAM)—Association for the protection of minority shareholders.

  27. Cheffins, Armour [5].

  28. From the shareholder’s perspective, the chief executive officer must take into account specific rules on inside information.

  29. One could argue that supporting a management or shareholder proposal at a general meeting of shareholders is private activism. In most countries, the individual votes of shareholders are not disclosed, hence supporting through voting a management or shareholder initiative remains private. Voting at general meetings is strictly regulated.

  30. For specific elements of the remuneration of French executive officers the shareholders have a say. (For an overview of these rights, see Thomas, Van der Elst [22].)

  31. Dorresteijn et al. [7].

  32. Van der Elst [24]. The countries are Belgium, France, Germany, the Netherlands and the United Kingdom.

  33. It should be noted that the board of directors in the other countries can only do so if it can be shown that the donation is in the interest of the company.

  34. Renneboog, Szilagyi [17].

  35. Eumedion [9]; Eumedion [8].

  36. For a theoretical analysis of the costs and benefits see Cheffins, Armour [5]; Katelouzou [14].

  37. Goranova, Verstegen [11].

  38. Schulte, Roth and Zabel [19].

  39. Integrated Corporate Relations [13].

  40. Rehbein, Logsdon, Van Buren III [18].

  41. Table 1B in Brav, Jiang, Partnoy, Thomas [3].

  42. The study of Girard identified performance related targeting. We classified this as a business strategy action. However it can also include more general maximising shareholder value actions.

  43. Inter alia in the United Kingdom and the Netherlands the law provides the company with the right to have its shareholders identified (United Kingdom, Companies Act part 22; The Netherlands, section 49b Securities Transfer Giro Act). If the regulatory tools are unavailable, market participants like Euroclear offer tools to companies to identify shareholders through the registration of the trading activities (see the information brochure at https://www.euroclear.com/dam/PDFs/Issuance/CapitalPrecision.pdf, last accessed 24 February 2013).

  44. Schulte, Roth & Zabel [19].

  45. Carleton, Nelson, Weisbach [4].

  46. Schulte, Roth & Zabel [19].

  47. Activist Insight [1].

  48. For an overview and analysis of both European and Member State requirements regarding internal control and risk management systems see: C. Van der Elst, “Risk Management in Corporate Law and Corporate Governance”, In Corporate Governance and the Global Financial Crisis, X. Sun, J. Stewart and D. Pollard (eds), Cambridge University Press, 2011, pp. 215–242 and C. Van der Elst, “Board of Directors and Risk Management”, in Boards of directors in European companies—reshaping and harmonising their organisation and duties, H. Birkmose, M. Neville and K. Sorensen (eds.), Kluwer Law International, 2013, 129–152. For a critical view on the legal requirements of a risk management system see L. Enriques and D. Zetzsche, “The Risky Business of Regulating Risk Management in Listed Companies”, European Company and Financial Law Review 2013, 271–303.

  49. Collectively referred to as “the COSO frameworks”.

  50. Committee of Sponsoring Organizations of the Treadway Commission (COSO) [6].

  51. Sydorowitz [21].

  52. Moody’s Investors Service [16].

  53. Sunder, Sunder, Wongsunwai [20].

References

  1. Activist Insight: Defense techniques. In: Activist Insight (ed.) Activist Investing, New York, vol. 10 (2014)

    Google Scholar 

  2. Becht, M., Franks, J., Mayer, C., Rossi, S.: Returns to shareholder activism: evidence from a clinical study of the Hermes UK Focus Fund. Rev. Financ. Stud. 22(8), 3093–3129 (2009)

    Article  Google Scholar 

  3. Brav, A., Jiang, W., Partnoy, F., Thomas, R.: Hedge fund activism, corporate governance, and firm performance. J. Finance 63(4), 1729–1775 (2008)

    Article  Google Scholar 

  4. Carleton, W.T., Nelson, J.M., Weisbach, M.S.: The influence of institutions on corporate governance through private negotiations: evidence from TIAA-CREF. J. Finance 53(4), 1335–1362 (1998)

    Article  Google Scholar 

  5. Cheffins, B., Armour, J.: The past, present and future of shareholder activism by hedge funds. J. Corp. Law 37(1), 51–102 (2011)

    Google Scholar 

  6. Committee of sponsoring organizations of the treadway commission (COSO): internal control—integrated framework, New York (May 2013)

  7. Dorresteijn, A., et al.: European Corporate Law. Kluwer Law International, Alphen aan de Rijn (2009)

  8. Eumedion: Evaluatie AVA-seizoen 2013, Amsterdam. http://www.eumedion.nl/nl/public/kennisbank/ava-evaluaties/2013_ava-evaluatie.pdf (2013)

  9. Eumedion: Evaluatie AVA-seizoen 2012, Amsterdam. http://www.eumedion.nl/nl/public/kennisbank/ava-evaluaties/2012_ava-evaluatie.pdf (2012)

  10. Girard, C.: Success of shareholder activism: the French case. In: Bankers, Markets & Investors, vol. 115, pp. 26–36 (2011)

    Google Scholar 

  11. Goranova, M., Verstegen, L.: Shareholder activism: a multidisciplinary review. J. Manag. (2014, forthcoming). doi:10.1177/0149206313515519

  12. Hendry, J., Sanderson, P., Barker, R., Roberts, J.: Owners or traders? Conceptualizations of institutional investors and their relationship with corporate managers. Hum. Relat. 59(8), 1101–1132 (2006)

    Article  Google Scholar 

  13. Integrated corporate relations: shareholder activism: proactive defense and informed response, New York, May (2008)

  14. Katelouzou, D.: The legal determinants of shareholder activism: a theoretical and empirical comparative analysis. Working paper, November (2013)

  15. Klein, A., Zur, E.: Entrepreneurial shareholder activism: hedge funds and other private investors. J. Finance 64(1), 187–229 (2009)

    Article  Google Scholar 

  16. Moody’s investors service: short-term shareholder activists degrade creditworthiness of rated companies (June 2007)

  17. Rehbein, K., Logsdon, J., Van Buren, H. III: Corporate responses to shareholder activists: considering the dialogue alternative. J. Bus. Ethics 112(1), 137–154 (2013)

    Article  Google Scholar 

  18. Renneboog, L., Szilagyi, P.: Shareholder engagement at European general meetings. In: Belcredi, M., Ferrarini, G. (eds.) Boards and Shareholders in European Listed Companies, pp. 315–364. Cambridge University Press, Cambridge (2013)

    Chapter  Google Scholar 

  19. Schulte, Roth and Zabel: Shareholder activism insight, New York (2012)

  20. Sunder, J., Sunder, S., Wongsunwai, W.: Debtholder responses to shareholder activism: evidence from hedge fund interventions. Working paper (August 2013)

  21. Sydorowitz, C.: Reaching out to shareholders. In: Activist Insight (ed.) Activist Investing, New York, p. 20 (2014)

    Google Scholar 

  22. Thomas, R., Van der Elst, C.: The international scope of say on pay, Vanderbilt law and economics Research. Paper No. 13-22 (September 2013)

  23. Van der Elst, C.: Are shareholder rights appealing to foreign shareholders? In: Festschrift für Klaus Hopt, pp. 629–644. De Gruyter, Berlin (2010)

    Google Scholar 

  24. Van der Elst, C.: The influence of shareholder rights on shareholder behavior. Corp. Fin. Cap. Mark. L. Rev. 1, 50–62 (2010)

    Google Scholar 

  25. Van der Elst, C.: Shareholder rights and shareholder activism: the role of the general meeting of shareholders. Belgrade Law Rev. LX(3), 39–64 (2012)

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Tilburg University and University of Ghent, Department of Business Law, Faculty of Law, Tilburg University, Tilburg, The Netherlands

    Christoph Van der Elst

Authors
  1. Christoph Van der Elst
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Christoph Van der Elst.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Van der Elst, C. The corporate response to shareholder activism. ERA Forum 15, 229–242 (2014). https://doi.org/10.1007/s12027-014-0345-0

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12027-014-0345-0

Keywords

Search

Navigation