The Geography of Shareholder Engagement: Evidence from a Large British Institutional Investor

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Manuscript Type: EmpiricalResearch Question/Issue: We study more than 12,000 shareholder proposals that were filed to S&P1500 companies from 1997 to 2009, and investigate the determinants of proposal withdrawal by the sponsoring shareholder. We also study the effectiveness of withdrawn proposals as a corporate governance device. Research Findings/Insights: We find that proposals filed by influential investors are more likely to be withdrawn than proposals filed by private investors. Our empirical results show that institutional ownership (in particular by long-term, passively investing institutions) is positively related to the likelihood of a proposal's withdrawal if the sponsoring shareholder is an institutional investor. We also document a negative relation between CEO ownership and the likelihood of withdrawal. This effect is most pronounced for corporate governance proposals. We also show that withdrawn proposals on executive compensation change subsequent corporate pay practices. Theoretical/Academic Implications: Our paper provides the first comprehensive evidence on withdrawn shareholder proposals. We show that withdrawn proposals are a strong and important category of proposals because managers proactively prevent them from being put to a vote. Hence, our results imply that researchers should also account for withdrawn shareholder proposals when making inferences about the effectiveness of proxy proposals. Practitioner/Policy Implications: Our empirical evidence points to the importance of withdrawn shareholder proposals as a governance mechanism. Managers try to protect their own power and reputation by preventing filed shareholder proposals from being put to a vote during the annual general meeting: They enter into private negotiations with the sponsors of the proposals to accomplish a withdrawal.

Section: Testable Hypothesesmentioning

confidence: 99%

Who Withdraws Shareholder Proposals and Does It Matter? An Analysis of Sponsor Identity and Pay Practices

Bauer¹,

Moers

Viehs

2015

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“…database studies have examined investor activism on ESG issues from different perspectives. These include filing of shareholder resolutions (Grewal, Serafeim, & Yoon, 2016;Lee & Lounsbury, 2011;Proffitt & Spicer, 2006;Rehbein, Logsdon, & Van Buren, 2013;Reid & Toffel, 2009;Vasi & King, 2012), exercising voting rights at annual general meetings (AGMs; Campbell, Gillan, & Niden, 1999;Monks, Miller, & Cook, 2004), and private engagement dialogues (Barko, Cremers, & Renneboog, 2018;Bauer, Clark, & Viehs, 2014;Bauer, Moers, & Viehs, 2015;Dimson, Karakas, & Li, 2015;Goodman, Louche, Van Cranenburgh, & Arenas, 2014;Hoepner, Oikonomou, Sautner, Starks, & Zhou, 2018;Logsdon & Buren, 2009;Rehbein, Logsdon, & Van Buren, 2013). Studies in the literature claim that private engagements are a powerful option of investor activism because of their direct impact on where the "real action typically occurs" (Logsdon & Buren, 2009, p. 353; see also Goodman & Arenas, 2015;Goranova & Ryan, 2014).…”

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confidence: 99%

“…The mainstream of studies has examined the visible part of activism, such as the shareholder resolution process, the responses of companies to shareholder resolutions, the determinants of shareholder resolution withdrawals, and the impact of withdrawn resolutions on target companies. This paper will focus on the hidden and direct mechanism of investor activism, namely, private engagements by institutional investors on ESG issues prior to or independent of a shareholder resolution (Barko et al, 2018;Bauer et al, 2014;Dimson et al, 2015;Goodman et al, 2014;Hoepner et al, 2018;Rehbein et al, 2013). Private engagements or dialogues with the target companies are probably widely used, but data restricted to proprietary databases on behindthe-scenes interactions that take place without public knowledge have constrained more broad-scale empirical research (Gifford, 2010;Gillan & Starks, 2003;Goranova, Abouk, Nystrom, & Ehsan, 2017;Logsdon & Buren, 2009;Rehbein et al, 2013;Yamahaki & Frynas, 2016).…”

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confidence: 99%

“…Private engagements or dialogues with the target companies are probably widely used, but data restricted to proprietary databases on behindthe-scenes interactions that take place without public knowledge have constrained more broad-scale empirical research (Gifford, 2010;Gillan & Starks, 2003;Goranova, Abouk, Nystrom, & Ehsan, 2017;Logsdon & Buren, 2009;Rehbein et al, 2013;Yamahaki & Frynas, 2016). The broad-scale empirical work at hand that investigates private engagement with respect to ESG issues has been presented by Dimson et al (2015), Bauer et al (2014), Hoepner et al (2018), and Barko et al (2018). The studies normally employ data of a particular institutional investor who has extended activism from traditional governance concerns into environmental and social issues (Barko et al, 2018;Bauer et al, 2015;Dimson et al, 2015;Hoepner et al, 2018).…”

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confidence: 99%

See 1 more Smart Citation

Private engagement by Nordic institutional investors on environmental, social, and governance risks in global companies

Semenova

Hassel

2019

Research question/issue: The paper examines private engagements related to environmental, social, and governance (ESG) incidents as a corporate governance mechanism used by Nordic institutional investors to influence MSCI World companies. The questions addressed are how an agent-led collaborative engagement is carried out, what are the characteristics of the target companies selected, and if the successful engagements can improve ESG performance compared with pre-engagement and incomplete cases. Research findings/insights: A unique data set of 355 private engagements of a professional agent on behalf of its Nordic clients is studied on environment, human and labor rights, and corruption risks between 2005 and 2013. An engagement process of the agent is described with focus on sequence and duration of actions of private engagement dialogues before filing a resolution. Successful private engagements, when target companies adopt the proposed ESG changes, are 27.6%. The incidentdriven private engagements target companies rated with high market values and ESG performance. ESG performance and transparency increase for succeeded engagements in the postengagement period and relative to incomplete engagements.Theoretical/academic implications: The paper provides empirical support for a social movement-based influence of private engagements on target companies and adds to the broad-scale empirical literature on investor activism. In the Nordic governance setting, an agent-coordinated private engagement is seen as a social movement that supports targeting companies with a potential for change.Practical/policy implications: Insights are offered to actors in the value chain in financial markets by demonstrating that successful ESG engagements have the potential to change portfolio company ESG practices.

“…The existing academic studies tend to concentrate on studying engagement practices in the UK and the US (e.g. Clark & Hebb, 2004;Gifford, 2010), while less effort has been put into analyzing engagement outside these two Anglo-Saxon contexts (Bauer et al, 2013;Sjöström, 2008). To our knowledge, only three academic works (Choi & Cho, 2003;Chow, 2010;Gond & Piani, 2013) study private engagement in emerging markets.…”

Section: Discussionmentioning

confidence: 99%

Institutional Determinants of Private Shareholder Engagement in Brazil and South Africa: The Role of Regulation

Yamahaki¹,

Frynas²

2016

Manuscript type: Empirical Research Question/Issue: This study investigates to what extent regulation encourages private shareholder engagement attitudes and behavior (including behind-the-scenes consultations, letters, meetings, and ongoing dialogues) of pension funds and asset managers with listed investee companies on environmental, social, and corporate governance (ESG) issues in Brazil and South Africa. Research Findings/Insights: Drawing on 44 in-depth semi-structured interviews with pension fund representatives, asset managers, and other investment players, the findings suggest that legislation provides limited direct encouragement to private engagement behavior. However, legislation encourages attitudes toward Responsible Investment by enhancing investor understanding of Responsible Investment, increasing the interest of pension funds and asset consultants in the Responsible Investment practices of asset managers, and reducing the fear of pension funds to violate their fiduciary duties, thereby promoting an enabling environment for ESG engagement. Theoretical/Academic Implications: This article adds to the literature on comparative corporate governance and shareholder engagement. To the best of our knowledge, this is first study that specifically analyzes how regulation affects private shareholder engagement behavior in emerging markets, providing empirical support for the institutional perspective. The findings also suggest that the sophistication of the legislation on ESG issues in Brazil and South Africa is more typical of developed countries, indicating the need for a more fine-grained analysis of emerging markets in corporate governance studies. Practitioner/Policy Implications: This study draws investors' attention to the importance of understanding the national legal environment of the companies with which they engage and offers insights to governments interested in fostering ESG engagement practices.