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Shareholder Activism

Benefits and Drawbacks

Series:

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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F) Conclusion

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I) Summary and final thesis

This entire analysis has strongly underscored the importance of the effectiveness of the shareholder franchise as a means to reduce agency conflicts based on the separation of ownership and control in order to increase the shareholder value of corporations. The effectiveness of the accountability mechanism of the shareholder franchise depends, however, mainly on the accountability friendliness of the underlying procedures or the ability of the economic owners to amend them. The analysis demonstrates that U.S. shareholders in particular face nomination and election procedures for the board of directors that do little to enhance accountability. In addition, they did not, at least until recently, have the opportunity to amend them in favor of a more effective shareholder franchise. At least in theory, shareholders of German corporations can, in contrast, use nomination and election procedures of the supervisory board that encourage accountability, partially even in the form of mandatory or default statutory provisions. In practice, de-facto cooptation prevails. However, active shareholders with stronger incentives and capable of overcoming free-rider issues and rational apathy are provided with useful accountability-friendly nomination and election procedures. The analysis has underscored the necessity to continue the path in favor of accountability-friendly nomination and election procedures under U.S. law to mitigate the legal barriers (active) shareholders have been confronted with in holding administrative members accountable.

Despite the legal barriers under U.S. law, active shareholders, especially hedge funds, have in both jurisdictions successfully led campaigns impacting specific management...

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