Academy of Management 2021, #AOM2021. I was a discussant at a symposium entitled, Synergizing Corporate Activism Research: Building a Shared Understanding of an Evolving Phenomenon (session 913) This post is mostly for my future reference but readers may also find parts interesting. I welcome contact from those attending #AOM2021 who are interested in collaborating with investors. As I note at the bottom, it would be mutually beneficial if academics and investors would collaborate more frequently.
Academy of Management 2021: Synergizing Corporate Activism Research
From the program: In recent years, corporate activism has increasingly become an important avenue by which firms and their internal stakeholders are able to communicate their views on sociopolitical and environmental issues, often as a means to precipitate change within the organization and/or society at large.
However, the term “corporate activism” is a contested one with no established consensus. By simply searching the term, one might come across examples of shareholders advocating for changes, CEOs speaking out on sociopolitical issues, advertising campaigns connected to controversial societal topics, or corporations signing petitions advocating a given sociopolitical position.
In addition to presentations of current research in these areas, this symposium will include corporate activists as guests in the discussion to share their first-hand perspectives and insights. The purpose of this symposium is to:
- elucidate the different forms of corporate activism,
- explore how this phenomenon is reshaping expectations of corporations and corporations’ expectations of themselves,
- consider the impact of corporate activism on society, and
- develop a future research agenda for this evolving literature.
Academy of Management 2021: Synergizing Papers Presented
Academy of Management 2021: Synergizing More Time
With hundreds of sessions, there was more to talk about than time allowed at Academy of Management 2021, #AOM2021. Since I have a blog, I can easily post a few prepared remarks that I did not get to make.
Questions related to Shareholder Activism
- What is a shareholder’s role with a firm?
Is it simply transactional? They provide some money with hopes of receiving a greater return?
JM (my response): Most shareholders buy stock on the secondary market, so are NOT providing any money to the firm. They are betting on the firm’s future. In return for their bets, they have voting rights to ‘elect’ the board and make some other high-level decisions.
Or are there obligations or duties that go beyond a simple transaction?
JM: Justice Brandies once wrote “There is no such thing to my mind… as an innocent stockholder… He accepts the benefits of the system. It is his business and his obligation to see that those who represent him carry out a policy, which is consistent with public welfare.”
However, because of limited liability, we have a situation where negligent shareholders and captured government agencies allow many companies to externalize costs. Many shareholders want their companies to “do the right thing,” they just don’t have tools to make oversight easy. That is one area where I can help.
- Related to this, what would then differentiate an involved shareholder from a shareholder activist?
JM: Involved shareholder vote and may engage. Activists often seek board seats.
Questions specific to Jim McRitchie
- What first got you involved in shareholder activism?
While a Fellow with National Institute Mental Health I saw productive experiments in worker’s self-management shut down because it threatened the status of managers. I later used my influence with CalPERS to make changes in corporate governance at many companies. As a regulator at Cal/EPA decided I could do more to hold companies accountable as a shareholder than as a regulator since they were regulating me more than I was regulating them.
- What is the goal and mission of your work?
Make companies more democratic and accountable to their shareholders and other stakeholders, especially employees. Facilitate the ability of investors to vote and influence how funds vote on their behalf. You may have seen Allison Lee’s speech to ICI while she was acting Chair of the SEC on the need for proxy voting reports by funds to be in a sortable format.
My petition to the SEC argued that change would stimulate competition by funds around voting since fees and earnings of the largest S&P 500 funds are virtually the same. (Harvard blog version, Proxy Scorecard, and Fund Competition)
Engine No. 1’s S&P 500 fund, VOTE, will break the mold. In backtesting, I am told they would have voted in favor of 80% of shareholder proposals. (No, I have nothing to do with the fund, other than being an investor who hopes to work with them on various issues.
I did help convince several funds, such as the $1.3T Norges Bank, to announce their votes in advance of AGMs. That will stimulate more thought, research, and discussion around voting. Maybe representatives from these funds will be invited to speak at #AOM2021.
- What changes have you noticed in shareholder’s efforts over time? What changes have you seen in firms’ responses?
Shareholders are winning on many issues. There is a convergence between SRI and CorpGov. Companies are more willing to talk and negotiate. However, most are still very resistant to giving any real voice to employees.
- Is there a boundary around what shareholder activists are justified in asking of companies? For instance, is it appropriate for shareholders to make requests related to political values? Or should shareholder activism be contained to the financial functions of the firm?
Ordinary business operations are off-limits unless they involve a significant issue of “widespread controversy” that transcends ordinary business. As we are all beginning to realize, environmental, social, and governance issues that can have a significant impact on corporations are growing in number, now even faster than corporate growth. The SEC was founded to protect investors but for decades it has been at least equally focused on protecting company managers from their investors. That looks to be changing, at least to some degree, under the current leadership.
- Maria and Mark discussed some of the issues activists can face when dealing with passive shareholders. Is this something you’ve come across in your own work?
The paper alludes to the fact that although the Big 3 may typically own about 25% of the stock in the S&P 500 companies, no individual holding represents a significant portion of the Big 3’s portfolio. Historically, they have had little incentive to hold corporate managers accountable.
Even the largest funds typically have only a couple of dozen staff overseeing voting at thousands of companies. Plus, they are trying to win contracts to run the retirement plans for those same companies. They have neither the staff nor the incentive to delve deeply.
For a decade or so they have been implementing what amounts to a vague checklist of good corporate governance practices. They are now beginning to extend that into social and environmental best practices, such as favoring more demographically representative boards, public release of EEO-1 data, disclosure of political spending, meeting widely accepted climate standards.
Academy of Management 2021: Other Sessions
I was also able to attend a couple of other sessions. Both were very informative. I wish I had time to summarize and comment on them.
Teaching Employee Share Ownership and Equity Compensation in the Contemporary Business School (session 321)
See also at CLEO. From the program: Employee share ownership and related types of employee financial participation are widespread compensation practices today. According to the 2018 General Social Survey, 19.8% of U.S. employees have equity ownership in the companies where they work, 8.7% hold stock options, 38.1% are eligible for profit sharing, and 30.1% are eligible for gain sharing. Nationally, 46.8% of employees are eligible for one or more of these forms of financial sharing (Kruse and Blasi 2019).
Ownership sharing takes a variety of forms, from stock options and stock bonuses for skilled employees in tech and professional settings, to broad-based employee share ownership approaches found in Employee Stock Ownership Plan companies and worker cooperatives. Despite the ubiquity of employee share ownership and despite research showing its positive effects on employee and firm-level performance outcomes, the topic is largely overlooked in business school classrooms. Few business schools educate students about this widespread organizational tool—despite its direct relevance to many commonly taught business school courses.
In this PDW, presenters will describe their own strategies for teaching about employee share ownership in a variety of business school and management classes, highlighting strong case studies, readings, and films designed for classroom use. Participants will then meet in pairs before breaking into facilitated discussion groups and closing with a large group discussion. Participants will gain knowledge about employee share ownership, familiarity with new teaching tools, and ideas for how to integrate discussion of employee share ownership into courses that they themselves teach.
- Joseph Blasi, Institute for the Study of Employee Ownership and Profit Sharing at Rutgers SMLR
- Adria Scharf, Rutgers U., School of Management and Labor Relations
- Daphne Berry, U. of Hartford
I am extremely interested in the work of this group. More employee ownership at major companies, combined with more voice in board-level decisions would be transformative. See Procter & Gamble Employees: Do You Have a Say?
I am most interested from a shareholder perspective in tapping into all the brain-power at corporations and in heightening productivity. Employees offer a more diverse, and often more needed perspective as typical Americans. Employees can often relate better to customers and many other stakeholders than with named executives and directors, often identified with the 1%.
As a citizen, I am also interested in the political efficacy empowered employees bring to civic engagements. Employees are closer to the ground. If their company pollutes or creates toxic products, they are often the first to feel the impact. Since most of their money comes from their pay and investments in other companies, employees usually do not want the company they work for to externalize costs, especially those where they will need to help pay to correct.
Having employees with substantive shares and voice also offers boards and managers a strong defense against hostile takeovers that bring short-term gain at long-term loss. Of course, that only works if employees believe current managers are better for them than what is on offer.
The Influence of Shareholder Activism on Boards (session 624)
From the program: Recent years have seen an upsurge in shareholder activism, or the actions taken by shareholders to influence firm policies and practices. As boards of directors are responsible for fundamental decisions that affect change in a firm’s strategy, activist shareholders rely on board representation as the primary mechanism for promoting their vision in the firms they target.
However, despite the prevalence of activist board representation, management research has thus far lagged behind in addressing theory regarding its implication for firms. This panel symposium aims to expand the theoretical conversation surrounding shareholder activism and boards to new and interesting areas, as well as to promote dialogue regarding how we may advance our understanding of this phenomena.