Less is More: Making Institutional Investor Activism a Valuable Mechanism of Corporate Governance

Abstract

Abstract Institutional investors have in the past decade increasingly engaged in corporate governance activitics, introducing proposals under Rule l 4a-8, the Securities and Exchange Commission’s (SEC) proxy proposal rule,1 and privately negotiating with management of targeted firms with the stated goal of improving corporate performance. For example, since the mid- l980s, mstitutions have submitted shareholder proposals on corporate governance> consisting principally of proposals to eliminate defensive tactics to takeovers, to adopt confidential proxy voting, to enhance board independence, and to restrict executive compensation, to hundreds of firms. Before 1986 only a small set of individual investors engaged in such activism: from 1979 to 1983, religious groups and between six or seven individuals, depending on the year, iubmitted more than half of all proposals, which ranged in the hundreds every year (e.g. Liebeler 1984: 438 and n. 86).

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