Principal-principal conflicts leading to activism of a large government-owned investor in Brazil

Abstract

This article analyzes conflicts between principals that led to activism by one large Brazilian government-owned investor as a minority shareholder and verifies the antecedents, means employed, apparent motivations, and effectiveness of its reactions (Goranova & Ryan, 2014). It examines the cases of three large high ownership concentration listed companies using solely public sources. Poor performance was a frequent conflict antecedent. No evident trade-off between activism and corporate governance (CG) practices emerged. High ownership concentration influenced the way the investor reacted and its success because opposition through internal CG mechanisms was usually not successful and led to legal proceedings. The limitations of the regulatory framework became evident from the mixed outcomes of these proceedings. The investor was not exclusively financially motivated and it occasionally opposed the interests of other minority shareholders to follow government policy. These findings illustrated how high ownership concentration rendered difficult the mitigation of principal-principal conflicts even for a large government-owned investor and help explain the failure of previous econometric studies to relate activism, quality of CG practices and performance (Young, Peng, Ahlstrom, Bruton, & Jiang, 2008)

Say on pay determinants in Brazilian public companies

“…The results that contrast with international evidence, especially the influence of performance and aspects of CG, lend support to the importance of investigating SOP in emerging economies. In emerging markets, changes in legislation are difficult and the solution of conflicts by legal means is a last resort (Duarte & Leal, 2021). The results show the importance of regulatory changes, such as SOP and distance voting, as alternatives that provide minority shareholders with a way to voice their opinions.…”

“…It is possible that in an environment with little legal protection and greater concentration of control, better governance encourages shareholders to manifest their opinions against compensation proposals. When analyzing cases of activism in Brazil, Duarte and Leal (2021) suggest that being listed in special segments of governance in Brazil does not guarantee immunity to activist initiatives.…”

“…Santos et al (2019) examine the relationship between foreign investors and CG in Brazilian companies. Duarte and Leal (2021) report on the role of institutional investors in partner conflicts in Brazil. These characteristics, innovations, and the growing presence of foreign, institutional and individual investors lend relevance to the analysis of SOP and distance voting in a large emerging market.…”