Shareholder Activism

Shareholder Activism Yu Mingshan (俞铭珊)

Article3:Shareholders at the gate ------phenomena of the shareholder activism

Let’s begin with an example • Walt Disney got bumper profits in 2012. • Disney’s boss looked forward to the gratitude from shareholders. • However, shareholder activists grumbled at the company and threatened to disperse his power.

Before the financial crisis of 2008 • Shareholder activism was rare. • Shareholders mounted big campaigns only when the firm performed horribly. • Most investors just left when they were unhappy with the company.

After the financial crisis of 2008 • Laws and regulations have been reformed to give shareholders greater power. • Shareholders show their muscle more often. • Even profitable companies can be the target of shareholder activism. • Examples of Apple and Disney

Things hid behind the shareholder activism • It’s the institutional investors who have pushed the campaign of activism. Trade union pension funds Three wealthy individual corporate Self-styled “social responsible” funds Proposed 90% of the shareholder resolutions in 2011-2012 institutional investors

The intension of these institutional investors • Short-interested profits? • This popular opinion is incorrect. • Examples of Yahoo and J.C.Penny

What do institutional investors care about? • Corporate-governance issues: • Majority voting in board election • Executive pay • Splitting the role of chairman and CEO • …… • Examples of Chesapeake Energy and Citigroup

Shareholders at the gate • Wal-Mart • Shareholders hope to unseat the board’s audit committee who have been engaged in the bribes. • Dell • Shareholders resist the boss’s plan and want to vote out the auditor.

“The days of guaranteed boredom at annual meetings are gone.”

Article4：Shareholder Voting and Corporate Governance Around the World ------explanations of the shareholder activism

Whether the shareholder voting process is an effective way to exercise corporate governance? A cross country research

Q1:Whether the American institutional shareholders vote as though they are exercising governance?

Data used to answer the question • 1、The percentage of U.S institutional investors’ votes against management’s recommendations for annual director election

2、Country-level investor protection environment Country-level proxies Transparency Shareholder protection Enforcement of law Other aspects

3、Firm-level investor protection environment Firm-level proxies (insider control) Degree of controlling shareholder entrenchment Possibility that outsider shareholders can be expropriated

Answer to the first question Weaker country-level protection Higher level of votes against directors Higher level of Managerial entrenchment Greater level of votes against directors

Q2: Whether the votes American institutional shareholders cast have governance-related outcomes？

Data used to answer the question • 1、The number of U.S institutional investors’ votes against management’s recommendations for annual director election • 2、The number of directors exiting the board after they’re opposed • 3、Performance of the companies

Answer to the second question Greater votes against directors Significantly higher number of directors exiting the board No matter how the company performances Poorer performance of the company Higher number of directors exiting the board No matter in what kind of country

Conclusions • 1、Institutional investors choose to challenge management when they feel they are expropriated. • 2、Institutional investors’ votes do have government-related outcomes. • 3、 Shareholder voting process is an effective way to exercise corporate governance.

The link between two articles Institutional investors lost money in the financial crisis. Laws and regulations have been reformed after the crisis. Phenomena After the financial crisis of 2008 Institutional investors feel that they have been expropriated. Institutional investors feel that their votes are more effective. Institutional investors become more active in corporate governance after the financial crisis of 2008.

Shareholder Activism