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Sarah Soule: How Corporate Activism Alters Companies


Sarah Soule: How Corporate Activism Alters Companies

Companies that are targeted by activists become more socially-responsible over time.
A finger pointing to a line in a compensation report document
Shareholder activism can shape corporate behavior. | Reuters/Lucy Nicholson

Corporate protests such as picketers can hurt a company stock price. But what are the effects of shareholder activism on social issues? A new study shows that it too has consequences, even when it seems to do nothing in the short term.

In these kinds of protests, activists buy stock so they can participate in the corporate structure and push for resolutions — which often show up in other shareholders’ mailboxes in the form of thick white packets calling for votes on social issues. Although these resolutions often go nowhere, the protests themselves bring attention to the issue and show investors that corporations are dealing with potential issues, according to research by Sarah Soule, a professor of organizational behavior at Stanford Graduate School of Business. For the activists, she says, the corporate responses also mean they increasingly get a say in how a corporation handles such issues. In the long run, that means relationships between activists and corporate leaders sometimes move from combative to collaborative.

While there may not be the sort of direct effects you expect right away, there are incremental changes that can be quite profound.
Sarah Soule

Cynics might suggest that this is a form of “greenwashing” by the corporations— that is, when corporations try to present an environmentally friendly image even when their actions don't match up. But Soule, who has long studied the effects of protests on corporations, argues that it also signals to subsequent activists that there is some openness. And, she adds, “while there may not be the sort of direct effects you expect right away, there are incremental changes that can be quite profound.”

To conduct the research, Soule, along with Stanford GSB student Jacob Model and Brayden G. King, an associate professor at the Kellogg School of Management at Northwestern University, tracked outcomes of more than 750 shareholder resolutions related to environmental causes. In a second study, she and King worked with Mary-Hunter (Mae) McDonnell, an assistant professor at the McDonough School of Business at Georgetown University, to examine interactions between corporate activists and 300 corporations.

Both working papers found that the more activists protested, the more corporations responded. And while activists couldn’t count on winning short-term battles, simply engaging with corporations created change. In these instances, shareholder activism brings attention to issues. The companies respond in part to help move those issues onto a platform that they can control, such as their own social responsibility committee or publishing a report on a particular topic. At the same time, that means the corporations are now paying attention to concerns, Soule says.

Chart by Cheryl Phillips

The researchers also found that the more often activist groups submitted shareholder resolutions, the more often companies responded either neutrally or positively, as defined below:

  • If the company negotiates with the shareholder to get the resolution withdrawn, this is defined as a positive response by the researchers; for example, it can mean the corporation is responding to the concerns by promising a report.
  • Doing nothing, which means that the resolution will go to a vote, is seen as a neutral response; the company isn’t against having the issue placed in front of shareholders.
  • A negative response is when the corporation challenges a shareholder resolution with the Securities and Exchange Commission which regulates resolutions and can keep them from being placed on a ballot.

Additionally, when corporate activists targeted a company more often, they not only received more responses from corporations over time, but they also received more favorable responses over time.

Chart by Cheryl Phillips

“I think it’s easy for activists to get frustrated and feel that they are not having a discernible effect on the target, and this research shows they are having an impact,” McDonnell says.

As for corporations, they can look at it two ways, Soule says.

“You might imagine companies saying, ‘Oh, wow, what have we done — we've now kind of opened ourselves up to more activism,’” she says. But they also open themselves up to more learning and more opportunities for collaboration with activists. “This can be powerful.”

Sarah Soule is the Morgridge Professor of Organizational Behavior at Stanford GSB and the Hank McKinnell-Pfizer Inc. Faculty Fellow for 2014-15.

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