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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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III) Preliminary results regarding transaction activism

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1) Means of active shareholders

The analysis of U.S.-American law in the context of transaction activism has proven the following: apart from collective action issues, the impact of shareholders on corporate transaction decisions through formal means is very limited. Shareholders have the right to participate in corporate decision-making by approving the decision only in a very limited number of fundamental transactions, mainly some merger constellations. The shareholders’ initiation rights in fundamental and indeed in all transaction decisions are limited. They are restricted to precatory shareholder proposals. Even if the shareholder meeting approves the proposal by a significant percentage, the administration decides whether to implement the proposal. The result is similar for shareholder means granting them the opportunity to indirectly impact these decisions through the use of effective accountability means applicable to the responsible administration. Corporate statutes and securities laws do not provide shareholders with the means necessary to effectively remove members of the administration who are responsible for opportunistic transaction decisions. The nomination and election rules and their recent and expected amendments have for a long time effectively kept and will continue to keep shareholders from effectively exercising their franchise. The minimum mandatory proxy access rule, recently adopted on the federal level (and currently not in force), granting shareholders access ← 209 | 210 → who have held a three-percent stake for more than three years, has limited the expectations that effectiveness will be significantly increased. In addition, the proxy rules relevant for direct and indirect impact have been...

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