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Stakeholder activism, managerial entrenchment and the congruence of interests between shareholders and stakeholders

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  • Giovanni Cespa
  • Giacinta Cestone

Abstract

We argue that when stakeholder protection is left to the voluntary initiative of managers, concessions to social activists and pressure groups can turn into a self-entrenchment strategy for incumbent CEOs. Stakeholders other than shareholders thus benefit from corporate governance rules putting managers under a tough replacement threat. We show that a minimal amount of formal stakeholder protection, or the introduction of explicit covenants protecting stakeholder rights in the firm charter, may deprive CEOs of the alliance with powerful social activists, thus increasing managerial turnover and shareholder value. These results rationalize a recent trend whereby well-known social activists like Friends of the Earth and active shareholders like CalPERS are showing a growing support for each other’s agendas.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 634.

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Date of creation: Jul 2002
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Handle: RePEc:upf:upfgen:634

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Web page: http://www.econ.upf.edu/

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Keywords: Corporate governance; managerial entrenchment; social activists; small shareholders; stakeholder society;

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  1. DeAngelo, Harry & DeAngelo, Linda, 1998. "Ancient redwoods and the politics of finance: the hostile takeover of the Pacific Lumber Company," Journal of Financial Economics, Elsevier, vol. 47(1), pages 3-53, January.
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Cited by:
  1. Callado-Muñoz, Francisco J & Utrero-González, Natalia, 2006. "Does it pay to be socially responsible? Evidence from Spanish retail banking sector," Working Papers of the Department of Economics, University of Girona 16, Department of Economics, University of Girona.
  2. Aleix Calveras & Juan José Ganuza, 2004. "Responsabilidad social corporativa. Una visión desde la teoría económica," Economics Working Papers 797, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Jinji, Naoto, 2005. "Strategic Environmental and Trade Policies with Corporate Environmentalism," Discussion Papers 2004-10, Graduate School of Economics, Hitotsubashi University.

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