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Ferri, Fabrizio --- "‘Low-Cost’ Shareholder Activism: A Review of the Evidence" [2012] ELECD 466; in Hill, A. Claire; McDonnell, H. Brett (eds), "Research Handbook on the Economics of Corporate Law" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on the Economics of Corporate Law

Editor(s): Hill, A. Claire; McDonnell, H. Brett

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848449589

Section: Chapter 11

Section Title: ‘Low-Cost’ Shareholder Activism: A Review of the Evidence

Author(s): Ferri, Fabrizio

Number of pages: 24

Extract:

11. `Low-cost' shareholder activism: A review of the
evidence
Fabrizio Ferri



1. INTRODUCTION

Over the last decade, a series of corporate governance scandals have given rise to an intense
wave of shareholder activism. In this chapter, I focus on two particular tools of shareholder
activism, namely shareholder proposals filed under Rule 14a-8 and shareholder votes on
uncontested director elections. These tools share an appealing feature. Their cost is quite
modest and they do not require a significant equity stake in the company ­ hence, they are
referred to as `low-cost' tools of activism. But their easy accessibility comes at a price. Both
shareholder proposals and shareholder votes on director elections are essentially non-binding
on the target firm, casting doubts on their effectiveness as a driver of change.
Low-cost activism can be contrasted with `activism via large ownership' where the power
to influence the firm derives from the (costly) acquisition of a significant equity stake. This
equity stake can then be used to press for changes in governance and strategy (through the
threat of `exit' or the threat of gaining control). This power may be quietly exerted behind the
scenes (large shareholder activism) or in a more confrontational and public manner (e.g.
proxy fights, hedge funds activism).1 In the case of low-cost activism, the power to influence
the firm is predicated upon the ability of the activist to build consensus among a broad spec-
trum of shareholders ­ crystallized in a symbolic, non-binding vote ­ ...