The Politics of Corporate Control and the Future of Shareholder Activism in the United States

Abstract

Over the past eleven years, activists – particularly public pension funds such as the California Employees Retirement System (CalPERS) – are credited with prompting boards to roust underperforming management at some of the largest US corporations, and they have pushed for reforms in areas ranging from compensation to corporate strategy. Evidence for shareholders’ increased interest in corporate governance is clear. In the 1984–5 proxy season, shareholder resolutions totaled 275, and the average vote was 5.74%; by 1991–2, resolutions and the average vote on them had climbed to 487 and 24.06%, respectively. In 1992, shareholders were also successful in pushing through regulatory changes that gave them the right to communicate with each other outside the management–dominated proxy system. After 11 years of shareholder activism, where does the movement stand today? Understanding the development of the shareholder–rights movement, the prospects for governance reform, and the future evolution of the movement requires a sophisticated understanding of how the politics of corporate control is accomplished and, in particular, the important role that social structure plays. In this article, we suggest that social movement theory, which sociologists have used to explain collective action by groups ranging from the Civil Rights movement to Mothers Against Drunk Driving, provides a useful tool for analysing owner–management conflicts, and in particular, the recent rise of the shareholder–rights movement in the United States. After briefly discussing the traditional economic view of corporate governance and its shortcomings, we argue that more–or–less organized politics is an essential ingredient of the American system of corporate governance. We then present a social movement framework to explain the rise in investor activism. We conclude by continuing our application of this framework to examine the maturation of this movement and to assess its future, in part by comparing it to other contemporary, confrontational movements.

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