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The financial crisis, investor activists and corporate strategy: will this mean shareholders in the boardroom?

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Abstract

The concept of stakeholder engagement is gaining increasing attention in the mainstream media and may feature as part of a corporation’s strategy for corporate social responsibility. Not only are boards considering how they might engage with key stakeholders, but stakeholders are also pursuing greater participation in the strategic decisions of companies in which they invest. While this is an emerging concept in companies governed by unitary boards, as in North America, the issue of stakeholder engagement in various forms is also entering debate in other countries around the world. In general, however, the idea of shareholder or stakeholder representation on the boards of most UK and Commonwealth companies is anathema. Forces now influencing the development of strategies for stakeholder engagement and the rise of active investors include changing corporate governance rules which give investors more power in the election of directors, the increasing role of pension plans and hedge fund investment groups which have produced investors who keep a close eye on company performance and value, and a sluggish or turbulent stock market as a result of the financial crisis initiated by the credit crunch in the sub-prime mortgage markets. In this paper the phenomenon of stakeholder representation is examined and results of a recent survey conducted among a large sample of New Zealand directors are presented. The findings suggest that these traditionally oriented boards are increasingly inwardly focused and are without an agenda for building and managing shareholder and stakeholder relations. Accordingly, such boards are unlikely to regard stakeholder engagement as a serious strategic issue and are thus also likely to miss significant opportunities in the changed business environment to benefit from stakeholder support.

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Notes

  1. Wall Street Journal 30/09/08, p. 19, and 07/10/08, p. 4.

  2. Wall Street Journal 29/09/08, p. 19.

  3. Financial Times, 27/01/09, p. 7.

  4. Financial Times, 07/02/09. RBS Slims down 16-strong board in break from past. http://www.ft.com/cms/s/0/e0ca96a8-f4b9-11dd-8e76-0000779fd2ac.html.

  5. Wall Street Journal 06-08/02/09, p. 14, John Thain.

  6. As proposed at the Heads of Nations annual meeting of the World Economic Forum, Davos, Switzerland, January 2009. See “UK financial regulator calls for world watchdog”. International Herald Tribune, 28 January 2008. Retrieved 06.02.09 http://www.iht.com/articles/ap/2009/01/28/business/Davos-Forum-Financial-Regulation.php.

  7. E.g. “Bailout paves new road for capitalism”, Wall Street Journal 23/09/08, pp. 19–20; “Leaders discuss crisis response”, Wall Street Journal 23/09/08, p. 13.

  8. Online. Available at http://www.worldchanging.com/archives/005373.html.

  9. Care is required in the use of the term “corporate democracy” since it holds different meanings, as cautioned by Joo (2003, 2006). In this paper the term is used in the sense of a more participative involvement by shareholders and other stakeholders than is currently available through shareholder voting rights. It also is used in the sense of addressing issues of corporate hierarchy and corporate power. However, a more in-depth discussion of this debate is outside the scope of this paper.

  10. As may be the case in Japan.

  11. Troubled Assets Relief Programme.

  12. Connecticut has passed a law requiring them to do this.

  13. E.g. For more than half a century, Hewlett-Packard has argued that profit is not the main point of its business (The Economist 12/14/2002). DIY homeware and retail chain B&Q has found ways to improve services to disabled customers and those who shop with them through a network of some 300 partnerships between staff and local disability groups across the UK. Staff competence for this market group has improved as a result, attracting disabled customers as well as increasing employee satisfaction and productivity (Grayson and Hodges 2004).

  14. Recent examples include Fortis shareholder action over the BNP Paribus merger, Financial Times, 11/02/09 Fortis shareholders reject BNP deal http://www.ft.com/cms/s/0/68065628-f84f-11dd-aae8-000077b07658.html and Elan over top management capability, Financial Times, 09/02/09 Investors urge shake-up of Elan’s “arrogant” management http://www.ft.com/cms/s/67cedd18-f649-11dd-a9ed-0000779fd2ac,Authorised=false.html.

  15. By contrast the shareholder perspective is consistent with a view of the corporation as an oligarchy.

  16. Of ~470,000 firms in New Zealand, in excess of 90% are classified as small and/or sole proprietorships http://www.stats.govt.nz/products-and-services/media-releases/nz-business-demographic-statistics/nz-business-demography-statistics-feb08-mr.htm.

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Authors and Affiliations

  1. Faculty of Business and Law, Auckland University of Technology, Private Bag 92006, Auckland, 1142, New Zealand

    Coral Ingley

  2. Waikato Management School, Hamilton, New Zealand

    Jens Mueller

  3. Melbourne Business School, 200 Leicester St, Carlton, VIC, 3053, Australia

    Graeme Cocks

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  1. Coral Ingley
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  2. Jens Mueller
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  3. Graeme Cocks
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Correspondence to Coral Ingley.

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Ingley, C., Mueller, J. & Cocks, G. The financial crisis, investor activists and corporate strategy: will this mean shareholders in the boardroom?. J Manag Gov 15, 557–587 (2011). https://doi.org/10.1007/s10997-010-9130-9

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