Voting Power and Shareholder Activism: A Study of Swedish Shareholder Meetings

• DOI: http://doi.org/10.1111/j.1467-8683.2010.00811.x
• Author: Thomas Poulsen,Steen Thomsen,Therese Strand
• Date: 01 July 2010
• Published date: 01 July 2010

Voting Power and Shareholder Activism:

A Study of Swedish Shareholder Meetings

Thomas Poulsen*, Therese Strand, and Steen Thomsen

ABSTRACT

Manuscript Type: Empirical

Research Question/Issue: This paper analyses the impact of voting power on shareholder activism using unique data on

activism at Swedish shareholder meetings. We hypothesize that there is a positive relationship between shareholder

activism and a measure of the largest shareholder’s sensitivity to increased participation by small shareholders.

Research Findings/Insights: We f‌ind that f‌irms’ amenability to small shareholder inf‌luence leads to more proposals by the

nomination committee, but fewer proposals by other shareholders and fewer proposals voted against. We interpret this as

evidence that the shareholder elected nomination committees effectively channel shareholder concerns and preempt other

kinds of activism. In addition, we f‌ind more shareholder activity in large f‌irms and less activity in leveraged f‌irms.

Theoretical/Academic Implications: This paper offers a new voting power approach to the study of shareholder activism.

We show the empirical implications of this approach, but also the importance of local institutions such as nomination

committees in shaping the nature of shareholder activism.corg_811329..343

Practitioner/Policy Implications: Politicians and companies that desire active shareholders could improve the amenability

of f‌irms to shareholder inf‌luence by ownership transparency, shareholder committees, contacts with shareholder associa-

tions and other vehicles for collective action.

Keywords: Corporate Governance, Shareholder Activism, Ownership Structure, Coalitions

INTRODUCTION

Activism by pension funds, hedge funds, and other insti-

tutions is on the rise, spreading beyond the Anglo-

American governance system where it began (Gillan &

Starks, 2007). Yet, we still know very little about shareholder

activism outside the US and UK and next to nothing about

activism by non-f‌inancial institutions. Despite the important

formal role ascribed to shareholders in companylaw,many of

them appear passive (Gillan & Starks, 1998; Karpoff, 2001).

In this paper, we make whatwe believe to be an important

contribution to the literature on shareholder activism. We

develop a new voting power theory, which we apply to a

unique data set on Swedish shareholder meetings. Viewing

shareholder activism as a balancing of costs and benef‌its in

representing minority investor interests (Grossman & Hart,

1980; Pozen, 1994; Shleifer & Vishny, 1986), we argue thatthe

expected net benef‌its depend critically on the probability of

successful intervention, which in turn depends on the

company’s ownership structure, size, identity of sharehold-

ers, leverage, and local institutions.

We choose Sweden as a testing groundfor our hypotheses

for three reasons. First, information on ownership structures

of listed f‌irms is publicly available enabling us to calculate

each shareholder’s relative voting power more precisely.

Second, given Sweden’s intermediate level of ownership

concentration, smaller shareholders can often make a dif-

ference in coalition building. Third, studying Sweden

illustrates how the institutional environment inf‌luences

shareholder activism which is often directed against a ruling

coalition of large blockholders rather than an entrenched

management team as in the US and UK.

Sweden’s governance system is characterized by business

groups, two-tier boards, labor inf‌luence, and consensus

(Norden & Strand, 2009; Sinani, Stafsudd, Thomsen, Edling,

& Randøy, 2008). In this setting, affecting a change through

overt activism may be diff‌icult. However, we f‌ind evidence

that shareholder based nominationcommittees function as a

vehicle for more subdued, negotiated compromisesbetween

small shareholders and controlling blockholders. We also

f‌ind evidence that board proposals are substituted by share-

holder proposals, that foreign ownership increases

*Address for correspondence: Copenhagen Business School, Department of Interna-

tional Economics and Management, Porcelaenshaven 24, 2000 Frederiksberg,

Denmark. Tel: +4538152372; Fax:+4538152515; E-mail: tpo.int@cbs.dk

329

Corporate Governance: An International Review, 2010, 18(4): 329–343

© 2010 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2010.00811.x