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Shareholder Activism

Benefits and Drawbacks

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Marion Hartmann

This book analyses and compares the benefits and drawbacks of shareholder activism in corporations under US American and German law, applying means of new institutional economics. The analysis concentrates on three fields of action of active shareholders in targeted corporations: nominations and elections, transaction decisions and financial decisions. The author evaluates and compares the effectiveness of the means which active shareholders use and of the limitations they face. She concludes that shareholder activism has benefits and drawbacks. Both require legal actions under the two jurisdictions, such as stronger nomination and election rights under US American law and more effective disclosure obligations under German law.
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A) The thesis

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I) Motivation

According to the well-known U.S.-American financial investor Wyser-Pratte, who has been active since the 1970s, there are not only good active investors. There are also bad ones who trample the practices of local cultures, fire people, and enrich themselves at the expense of others, as some U.S.-American Funds have done. In Germany, the “Locust Debate,” a discussion about the benefits and drawbacks related to active investors, began in 2005. Franz Müntefering, at that time head of the Social Democratic Party in Germany, used active investors, whose presence in Germany was rather new, as scapegoats to win the 2005 election.2

In both Germany and the United States, the debate about the benefits and drawbacks of active shareholders is closely related to the question of the adequacy of existing provisions in restricting destructive activism, the necessity of additional statutory provisions to restrict active shareholders in negatively affecting targeted corporations, or the need to lift current legal limitations that apply to (active) shareholders. Recent data on the long-term effects of shareholder activism applied to U.S. firms relating closely to short-termism as the sharpest charge active shareholders in both countries have been confronted with has fueled the debate again.

II) Aim, scope, and method

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