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A Comparative Analysis of Shareholder Proposals in the US and UK

A Comparative Analysis of Shareholder Proposals in the US and UK. Bonnie Buchanan, Seattle University Tina Yang, Clemson University/Villanova University. European Financial Management Symposium – Cambridge University, April 10, 2009.

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A Comparative Analysis of Shareholder Proposals in the US and UK

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  1. A Comparative Analysis of Shareholder Proposals in the US and UK Bonnie Buchanan, Seattle University Tina Yang, Clemson University/Villanova University European Financial Management Symposium – Cambridge University, April 10, 2009

  2. Shareholder-initiated proposals occupy a unique place in corporate law, as they provide the shareholder with a mechanism by which to initiate corporate action, as opposed to merely reacting to the actions of management. -- Aaron A. Dhir (2006), American Business Law Journal "The recent market turmoil has clearly shown that if more shareholders had been activist it would have led to management being more accountable, fewer mistakes would have been made and shareholder value would have been preserved…". -- Philip Rice, CEO of SRM Global

  3. Motivation • US regulators are debating over proxy reform to empower shareholders • 2003. The SEC directed the Division of Corporation Finance to examine proxy regulations and develop possible changes to those regulations  • 2003. The SEC amend the Investment Company Act of 1940, requiring mutual funds to disclose their voting decisions. • 2007. The SEC issued a proposal that would allow shareholder access to company proxy statements for director nominations.

  4. Objectives • Compare US and UK shareholder proposals to shed light on the current policy debate in the US • We conduct a comparative analysis of US and UK shareholder proposals to address the research question: • How do the rules governing shareholder proposals impact the actions taken by shareholders? • How do firms respond to the different proxy rules and corresponding shareholder actions?

  5. A Comparison of US and UK Governance Systems

  6. Key Differences in US and UK Proxy Rules and Practices

  7. Part I Analysis- How do the rules governing shareholder proposals impact the actions taken by shareholders?

  8. Sample description (Table 1) US Sample UK Sample

  9. Research Question • How do proxy rules result in systematic differences in • How responsive is the proposal process? • The types proposals requisitioned? • Who sponsors the shareholder proposals?

  10. #Shareholder proposals and shareholder meetings (Table 2)

  11. Proposal Types – Definitions • Board related proposals • Compensation related proposals • e.g. expensing stock options • Governance related proposals • e.g. submitting shareholder rights plan (poison pill) to shareholder vote. • Social related proposals • e.g. reporting on political contributions • Environmental proposals • e.g. reporting on greenhouse gas emissions. • Business-related proposals • e.g. targeted at changing the firm’s operations or strategies.

  12. US shareholder proposals by proposal types (Table 3. Panel A)

  13. UK shareholder proposals by proposal types (Table 3. Panel B)

  14. U.S./UK shareholder proposals by proposal types (Table 3. Panel B)

  15. Shareholder proposals by sponsor types

  16. What Do We Learn So Far? • How do the rules governing shareholder proposals impact the actions taken by shareholders? • UK shareholders utilize the greater power granted to them under the UK proxy rules to advance their agenda

  17. Part II Analysis- How do firms respond to the different proxy rules and corresponding shareholder actions?

  18. Research Design • To assess the impact of shareholder proposals, we compare sample firms’ • Performance • CEO turnover • Board structure to those of the industry and a control sample (matched on Fama-French industry, ROA, and market value of equity)

  19. Part II Analysis- Impact Under US Proxy Rules

  20. Univariate Results - US Sample (Table 5)

  21. Univariate Results - US Sample (Table 5)

  22. Impact on firm performance – the US evidence (Table 8)

  23. Impact on corporate policies – the US evidence (Table 9, 10)

  24. Impact on CEO turnover

  25. Impact of Shareholder Proposals on Board Structure - Under US Proxy Rules

  26. What Do We Learn from the US Study? After a proposing event, US firms exhibit: • Higher stock returns • Key proposals have greater impact • Higher CEO turnover • Greater likelihood to appoint an independent Chairman

  27. Part II Analysis- Impact Under UK Proxy Rules

  28. Impact on firm performance and corporate policy - the UK evidence (Table 11. A)

  29. Impact on Board Structure and CEO Turnover – Under UK Proxy Rules

  30. What Do We Learn from the UK Study? • The economic impact of UK shareholder proposals is … • ROA and stock returns are lower • Less borrowing, more payout

  31. How Do the Rules Governing Shareholder Proposals Impact Firms?

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