Non‐financial Shareholder Activism: A Process Model for Influencing Corporate Environmental and Social Performance*

• Author: Palie Smart,Hugh N. Wilson,Gary J. Cundill
• Published date: 01 April 2018
• Date: 01 April 2018
• DOI: http://doi.org/10.1111/ijmr.12157

International Journal of Management Reviews, Vol. 20, 606–626 (2018)

DOI: 10.1111/ijmr.12157

Non-financial Shareholder Activism:

A Process Model for Influencing Corporate

Environmental and Social Performance*

Gary J. Cundill , Palie Smart1and Hugh N. Wilson

Cranfield School of Management, Cranfield, Bedford MK43 0AL, UK 1School of Economics, Finance and

Management, University of Bristol, Priory Road Complex, Priory Road Bristol BS8 1TU, UK

Corresponding author email: gary.cundill@cranfield.ac.uk

Shareholders havebecome increasingly active in endeavouring to influence companies’

environmental and social practices. In comparison with the mature field of financially

motivated shareholder activism, limited enquiries have been carried out on its non-

financial counterparts. This paper synthesizes the knowledge base through a review of

the academic literature, exploring shareholder activism intended to affect corporate

environmental and social performance. Theoretical perspectives appropriate to this

phenomenon are critically appraised: in particular, insights from social movement

theory,Hirschman’s theory of exit, voice and loyalty and stakeholder salience theory, as

well as the rolesof signalling and symbolic management actions. Data from the literature

are organizedinto a process model of non-financial shareholder influence. Underpinned

by the influencing context, this conceptualization centres on threeprimary shareholder

interventions: divestment, dialogueand shareholder proposals. These interventions are

enabledthrough a range of actors and tools: coalitions, non-governmentalorganizations,

codes and indices, the media and regulators. The interaction between interventionsand

the enabling actors and tools helps to determine managers’ perceptions of shareholder

salience. These perceptions subsequentlyshape the organizational behaviours that affect

companies’ symbolic and substantiveenvironmental and social performance. An agenda

to direct future researchin this burgeoning field is articulated.

Introduction

Shareholder activism has been studied for more than

a century (Gillan and Starks 2007; Rutterford 2012),

tracking a trajectory of increasing influence on com-

pany managers (McKinsey & Company 2014). Typ-

ically, the purpose of this activism has been to im-

provea company’sfinancial performance (Denes et al.

2017; Martin and Nisar 2007; Schneider and Ryan

2011), and only comparatively recently have share-

holder activists begun to prioritize environmental and

social performance (Goranova and Ryan 2014). With

∗A free Teaching and Learning Guide to accompany

this article is available at: http://onlinelibrary.wiley.com/

journal/10.1111/(ISSN)1468-2370/homepage/teaching___

learning_guides.htm.

the rise in awareness of global sustainability chal-

lenges among incoming generations, such priorities

are now widely on display in the press (e.g. Flood

2015; McKibben 2015). In the US the number of

shareholder proposals relating to environmental and

social issues has risen by half in the past decade,

with more than 400 in 2015 (US SIF 2016). The In-

terfaith Centre on Corporate Responsibility (ICCR)

alone filed 67 climate-change-related proposals that

year (ICCR 2016).

Academic examination of this sub-field of share-

holder activism has commenced, but is yet to es-

tablish a body of evidence comparable to that of fi-

nancial shareholder activism. By way of illustration,

Goranova and Ryan’s (2014) review of the academic

literature brought together the streams of financial and

social shareholder activism. In their table of activism

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Non-financial Shareholder Activism 607

Table1. Primary theoretical approaches within the shareholderactivism literature

Theoretical perspective Exemplar references

Agency theory Eisenhardt (1989); Fama (1980); Famaand Jensen (1983); Jensen and Meckling (1976)

Stakeholder theory Donaldson and Preston (1995); Freeman (1984); Hasnas (2013); Phillips et al. (2003)

Institutional theory DiMaggio and Powell (1983); Greenwood et al. (2014); Meyer and H¨

ollerer (2014); Suddaby (2010)

Social movement theory Davis and Thompson (1994); McAdam (1982); Tilly(1978)

Exit, voice and loyalty Bahshur and Oc (2015); Hirschman (1970, 1980); Saunders (1992)

Signalling Connelly et al. (2010); Spence (1974); Taj(2016)

Stakeholder salience theory Mitchell et al. (1997); Neville et al. (2011)

outcomes, only five of 38 papers reviewedrelate to so-

cial or environmental performance. Sj¨

ostr¨

om’s (2008)

reviewof shareholder activism for corporate social re-

sponsibility, a construct integrally linkedto cor porate

environmental and social performance (Aguinis and

Glavas 2012), identified 34 articles and working pa-

pers, most of which were published after 2003. The

pace of publication has increased, and more than half

of the articles that form our paper’sliterature base ap-

peared after Sj¨

ostr¨

om’s review. This burgeoning body

of literature points to the need for the assembly and

organization of ideas that are currently partial and

fragmented.

Our review locates, critically appraises and syn-

thesizes relevant academic literature that examines

shareholders’ influence overcompanies’ environmen-

tal and social performance. The methodology used

to develop the literature base for the review is de-

scribed in the Appendix. In summary, a systematic

approach was used to create a foundational set of

articles, which was then supplemented through in-

teractions with other academics and the wider lit-

erature base. Our article is situated in the context

of a broad body of literature dealing with company

stakeholders, classically described byFreeman (1984,

p. 46) as ‘any group or individual who can affect or

is affected by the achievement of the organization’s

objectives’. The subset of stakeholders of primary in-

terest in this review is shareholders, those who have

an ownership stake in the organization, and the ac-

tivity of these shareholders that will be examined is

that of non-financial activism, the influencing of com-

pany environmentaland social performance using this

ownership stake (Sj¨

ostr¨

om 2008).

Most research has been carried out in the US and

to a lesser extent the UK. The reasons for this may

include the well-established tradition of shareholder

activism in the US (Rutterford 2012), the existence

of the US ICCR’s large database on social share-

holder activism (Clark et al. 2008), and the availabil-

ity of detailed analysis on US companies’ social and

environmental performance from, inter alia, KLD

Research and Analytics and the US Government’s

Toxic Release Inventory (Fisher-Vanden and Thor-

burn 2011).

We now analyse the main theoretical approaches

used in the expanding sub-field of non-financial

shareholder activism. We then provide a process

model to show how shareholders may influence

company management and how they may increase

managers’ perceptions of their salience to achieve

their aims. These shareholder interventions and their

enablers are evaluated in light of the main theoretical

approaches. Finally, an agenda for further research

based on the process model is offered prior to con-

cluding remarks.

Theoretical approaches to

non-financial shareholder activism

We have identified a range of theoretical approaches

in the academic literature that deals with shareholder

activism relating to company environmental and so-

cial performance. Exemplar references from this lit-

erature are provided in Table 1. What follows is an

analysis of some of the most prominent and poten-

tially useful theories that will in subsequent sections

be brought to bear on a process model for this form

of shareholder activism.

Understanding relationships: principals,

stakeholders, institutions and social movements

Agency theory would seem eminently suitable for

explaining shareholder–management interaction be-

cause of its intuitive and legallybased view that share-

holders, as principals of the company, delegate au-

thority to managers as their agents so that the latter

may perform the service of managing the company

(Jensen and Meckling 1976). This is indeed the pri-

mary framework deployed by scholars in the case of

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