The Economic Consequences of Large Shareholder Activism

15-07-2009

While ownership and control were under the effective supremacy of the firm’s (factual) owners at the beginning of the 20th century, the 21st century was entered by listed companies of which the growing size and the dispersion of ownership have paved the way for public corporations entailing systemic risk that are often characterized by a separation of ownership and control, coinciding the well-defined agency problem. While the agency problem was first attempted to be covered by monitoring mechanisms offered by the law – i.e. (i) the market for corporate control; (ii) the legal, political and regulatory system; and (iii) the internal control system – the modern corporate governance wave applies itself to the rights and responsibilities of shareholders as the owners and monitors of public corporations. The central figure in this debate are large shareholders who have acquired a reputation of being able to successfully affect corporate decision-making process of corporate boards. The features of large shareholder activism, however, have come under great scrutiny. A variety of studies indicate that under the vein of corporate monitoring, the activities of large shareholders circumvent the existing legal devices regulation investor voice and give rise to substantial concerns in the corporate governance arena. Commissioned by the European Parliament in January 2009, this study contemplates on the economic consequences of large shareholder activism in five European countries (Belgium, France, Germany, the Netherlands and the UK) and refers to two other countries (Italy and Spain).

While ownership and control were under the effective supremacy of the firm’s (factual) owners at the beginning of the 20th century, the 21st century was entered by listed companies of which the growing size and the dispersion of ownership have paved the way for public corporations entailing systemic risk that are often characterized by a separation of ownership and control, coinciding the well-defined agency problem. While the agency problem was first attempted to be covered by monitoring mechanisms offered by the law – i.e. (i) the market for corporate control; (ii) the legal, political and regulatory system; and (iii) the internal control system – the modern corporate governance wave applies itself to the rights and responsibilities of shareholders as the owners and monitors of public corporations. The central figure in this debate are large shareholders who have acquired a reputation of being able to successfully affect corporate decision-making process of corporate boards. The features of large shareholder activism, however, have come under great scrutiny. A variety of studies indicate that under the vein of corporate monitoring, the activities of large shareholders circumvent the existing legal devices regulation investor voice and give rise to substantial concerns in the corporate governance arena. Commissioned by the European Parliament in January 2009, this study contemplates on the economic consequences of large shareholder activism in five European countries (Belgium, France, Germany, the Netherlands and the UK) and refers to two other countries (Italy and Spain).

Εξωτερικός συντάκτης

Christoph Van der Elst and Gulsum Aslan (Department of Business Law, University of Tilburg, the Netherlands)