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Shareholder Activism

Benefits and Drawbacks


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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B) Introduction to shareholder activism


I) What is shareholder activism?

1) Definition of shareholder activism

Shareholders dissatisfied with the management of a corporation or corporate performance may decide for the “exit” and adopt the “Wall-street-rule” by selling their shares. They may also continue to hold their shares without doing anything, better known as “loyalty.”12 Shareholders who aim to express their dissatisfaction employ a wide range of means lying between the sale of shares and the initiation of takeovers or LBOs.13 In 1972, Hirschmann defined this “voice” option as any attempt to change rather than to escape from an objectionable state of affairs through individual or collective positions to the management directly in charge, appeals to a higher authority with the intention of forcing a change in management, or various types of actions and protests, including those meant to mobilize public opinion.14 Its function is to alert a firm or organization to its failings while giving it some time and the choice to respond to the pressures that have been brought to bear on it,15 depending on the costs of alternatives.16 Nowadays, shareholder activism refers to the interest of shareholders in shaping the direction of their company through their participation in the normal processes that shape the company, such as voting through proxies during a shareholder meeting. At the other extreme lies the popular hedge fund practice of accumulating shareholder minority positions in public companies large enough to move the companies single-handedly in one direction or the other...

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