CORPORATE GOVERNANCE FAILURES

Corporate Governance Failures

Corporate Governance Failures

Statement

“Tirole (2006) states that 'the governance of corporations has attracted much attention in the past decade. Increased media coverage has turned 'transparency', 'managerial accountability', 'corporate governance failures,' 'weak boards of directors' 'hostile takeovers,' 'protection of minority shareholders.”

Introduction

The influence of activist groups over firms has been analysed from various perspectives, with diametrically opposing assumptions. For example, from sociology (social movement studies) and political science emphasis has been placed on the conflict of interests, thus depicting their relationship as fundamentally adversarial (Keck & Sikkink, 1998; Micheletti, 2003). Conversely, in the tradition of stakeholder management, the potential benefits of cross-sector alliances have been highlighted; their relationship is seen as productive with a potential for win-win solutions ([WCED], 1987; Westley & Vredenburg, 1991).

Yet, some stakeholder groups assume both roles, sometimes presenting themselves as adversaries and other times as partners. For example, Greenpeace is renowned for its confrontational tactics, but has also worked with industry, for instance in developing new technological solutions that fit with its ideological position such as a CFC-free refrigerator. Therefore, collaboration and confrontation must be viewed as two broad strategic options for activist groups to pursue their interests

Some caveats have to be made before we address this question. It should be noticed, first, that to date—grosso modo—systematic, comparative research is lacking. There is some anecdotal evidence but few systematic case studies, and there is ground for suspicion that research attention has predominantly focused on the more visible instances of activism vis-à-vis firms. Second, efficacy of activism is notoriously difficult to operationalise and measure (Giugni, 1998), as indicated by the discussion of using the withdrawal of a shareholder proxy voting resolution as an indicator of success—what precisely is the deal usually remains undisclosed. One reason for making operational and measuring the efficacy of activism is that it may well be moderated by context and depend on contingencies.

It has, for example, been suggested that industry structure—the economic, organisational, and cultural features that function to enhance or constrain activist groups' efforts to change industry behavior (Schurman, 2004)—is a relevant factor, but contingencies, such as changes in board membership or sudden rises or declines in profits, may also impart the efficacy of their efforts. Such opportunities may affect the working of different activist groups in different ways. Another reason is that multiple factors, among which activism are one, can be involved in producing social change. For example, activism against corporate involvement with apartheid in South Africa may not in itself have resulted in the abolishment of apartheid, nor given the final blow to the regime, but it has certainly been an important element in the overall movement (Seidman, 2003).

Third, whereas some activist groups specialise in employing particular tactics—for example, some religious groups in filing shareholder resolutions—other activist groups, individually or in a joint and coordinated way, combine the use of various tactics in a particular campaign, and hence try to gain leverage through different influence mechanisms. Consequently, it will be difficult to relate the employment of ...