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Offensive shareholder activism vs. corporate centralism: Analysis of effects on long-term
strategy, corporate governance, and long-term shareholder value.
Date of Submission:
CHAPTER ONE: Introduction
The quest to solve corporate governance problems in today's business world is never-ending.
Several ways have been undertaken to improve corporate governance. One of which includes
shareholder activism (Ivanova, 2015). The main aim of shareholder activism was to deal with
agency issues that may arise in a company. A number of countries have that includes the United
States of America and the United Kingdom, have extensively exercised shareholder activism
(Musa, 2012). Several research studies have been conducted in order to understand how
shareholder activism can improve governance and company performance (Musa, 2012; Pacces,
2018; Shin, 2016). This research study, however, will delve around offensive shareholder
activism versus corporate centralism by conducting an analysis of its effects on long-term
strategy, corporate governance and long-term shareholder value. The research will attempt to
approach the topic from a more European angle as my analysis of previous research on this topic
suggests a strong Anglo-American bias. At the same time, the sometimes-substantial divergence
between the US, UK, and Continental Europe corporate governance systems have to be taken
into account when analyzing unique patterns during data analysis and conclusions.
The origin of the corporate legal entity in the world of business has experienced a fundamental
shift. For the first time, individuals making up the corporate management board are no longer
personally liable for their private equity. Furthermore, the legal system has extended such
protection from liabilities for the board of directors in corporations. Additionally, the new
fractional ownership structures by major shareholders, corporations, are also affected by the
centralization of decision power around the board of directors. With these dynamics, the
individual impact of shareholders has been minimal and until 10-20 years ago, they have retained
a passive stance.
However, due to the advent of shareholder activism, the corporate world for the first time has
experienced more vocal shareholders who were determined to shape the long-term strategy of the
company. At this point in time, the final verdict is still out on whether shareholder activism truly
generates a tremendous positive impact on corporate governance. This research study intends to
conduct a detailed exegesis of more extreme context when aggressive involvement of hedge
funds driven by short-term investment considerations ("Offensive Shareholder Activism")
collides with the long-term decision and strategy process between board of directors and the
entrusted management board of a company (example: Elliott hedge fund recent interference with
ThyssenKrupp AG strategic direction). Therefore, this study seeks to discuss the dynamics and
impact of the diametrically opposed the underlying interest of both parties and attempt to
determine potential methods to reconcile them for most optimal effect on shareholder value.
The development of this study research question will present a prospect for an in-depth study on
offensive shareholder activism versus corporate centralism. The central research question that
will contextualize this study is, therefore:
What are the effects of shareholder activism on long-term strategy, corporate governance, and
long-term shareholder value?
The study research objectives to contextualize the above research question will be as follows:
To conduct a detailed exegesis of offensive shareholder activism on long-term decision making
and strategy process between board directors and the company management.
To discuss the dynamics when aggressive involvement of hedge funds driven by short-term
investment considerations ("Offensive Shareholder Activism") collides with the long-term
decision and strategy process between the board of directors and the entrusted management
board of a company.
To discuss the impacts of offensive shareholder activism on corporate governance with longterm decision making and strategy process.
To determine potential methods to reconcile them for most optimal effect on shareholder value.
This study will be theorized by Agency theory (Goranova & Ryan, 2014) and stakeholder theory
(Hussain, Rigoni & Orij, 2018). According to agency theory, robust corporate governance plays
a significant role in shareholder protection. Since the largest shareholders in a firm dominate
major voting equity capital, take part in the management and control the board, conflict may
arise between the dominant and minority shareholders. Therefore, agency theory is essential in
tackling the relationship issues between firm owners and their managers, therefore, solving their
conflicting interests (Al-Bassam, Ntim, Opong and Downs, 2018). Stakeholder theory, on the
other hand, is a major theoretical alternative to the latter theory.
CHAPTER TWO: Literature Review
This chapter presents a relevant literature review of the study research topic. It includes a
literature review on shareholder activism and corporate governance.
2.1. Shareholder Activism
Shareholder activism is a term for a multitude of specific actions undertaken by shareholders.
Shareholder activism is the way in which shareholders use their rights as the company's owners
to influence the board of directors and the management decision process without gaining any
control (Goranova & Ryan, 2014). From the agency theory perspective, shareholder activism is
the involvement of shareholders in monitoring firm operations so as to reduce agency costs. The
activity increases governance effectiveness (good corporate governance) and reduces risk
management behavior (Obermann & Velte, 2018; Ramly, 2013; Souha & Anis, 2016).
Significantly, shareholder activism aids the involvement as well as the engagement of
shareholders in firm management.
The major aim of shareholders in exercising their rights is to gain an advantage by increasing
firm value through better management, which increases firm performance. Shareholder activism
usually targets the financial underperformance of companies and tries to raise shareholder value
and to improve strategies, policies, and corporate governance policies, as well as replace
directors (Boyson & Pichler, 2016; Denes, Karpoff, & McWilliams, 2016; Goranova & Ryan,
2014). Shareholder activism can produce substantial results and mitigate monitoring costs
(Bebchuk, Brav, & Jiang, 2015; Coffee & Palia, 2014). An example of this is a vote "No"
activism that rejects the election of a director found to be associated with improvement in a
company's performance in order to mitigate the divergence of interests between shareholders and
management (Del Guercio, Seery, & Woidtke, 2008). Shareholder activists can be shareholding
institutions, majority shareholders or individual shareholders. Shareholders of large institutions,
such as mutual funds and public pension funds, tend to adopt a defensive approach and to focus
on protecting their investments and ensuring that the company is running smoothly.
Shareholder activism of small shareholder institutions such as private equity tends to adopt
offensive strategies (Afza & Nazir, 2015). On the other hand, individual shareholders usually
acquire large stakes in target companies in order to gain significant influence on management
decisions. Shareholders can also use minority shareholder rights to present proposals and
demand meetings to discuss the replacement of board members.
Shareholder activism may be manifested in the form of private discussions, open communication
with directors and management, asking questions, press campaigns, public 'naming and shaming',
open discussions with other shareholders, media debate, putting forward shareholder resolutions,
calling together general meetings, ultimately seeking to replace individual directors or the entire
board, and taking legal action. Vote "No" activism has been found to be effective in sending
messages about shareholders' priorities and in directing the management to make policy changes
to meet the interests of the shareholders. In the United States, owners frequently negotiate with
firm managers and board directors to make changes in management or strategy and submit
proposals at a company's annual shareholder meeting about corporate governance issues (Becht,
Franks, Mayer, & Rossi, 2010). In Europe, shareholder activism is commonly conducted through
private negotiation with management (Becht et al., 2010), with most activism negotiations
focusing on governance structure (Becht et al., 2010). But shareholder proposals are uncommon
in Europe (Cziraki, Renneboog, & Szilagyi, 2010).
2.2. Corporate Governance
Corporate governance is important in ensuring the protection of shareholders' interests as well as
ensuring an improvement in corporate performance. Companies that are well governed have high
chances of attracting investors (Albakoush & Ishak, 2019). The separation of ownership in a firm
ranging from corporate management, better corporate governance practices such as the
utilization of an effective monitoring system assists shareholders in monitoring directors of a
firm. According to Al-Bassam, Ntim, Opong, and Downs, (2018) corporate governance codes
implementation globally is in line with the rights of the shareholders in monitoring their
businesses. Albakoush and Ishak (2019), further points out that shareholder activism improves
the quality of governance and aids in ensuring effective corporate governance and therefore,
most large shareholding firms can possibly participate in significant shareholder activism
(McCahery, Sautner & Starks,2016). Corporate governance is a set of mechanisms that includes
contracting, such as in property rights, executive compensation, debt covenants, as well as
corrective share-holder engagement that seek to align the interests of managers and owners
(Rose & Sharfman, 2014).
CHAPTER THREE: Research Methodology
3.1. Research Design
This study will utilize a qualitative approach was to give the researcher an in-depth
understanding of the research topic (Creswell, Klassen, Plano Clark and Smith, 2011).
3.2. Target Population and Sampling
The target population for this study will be both public and private companies in Malaysia. The
sample size of this study will include 60 conveniently selected firms in Malaysia. The research
participant will be chosen using a convenience sampling technique (Etikan, Musa & Alkassim,
3.3. Data collection methods
The researcher will employ semi-structured interviews, participant observation, and document
analysis as the main data collection methods. Semi-structured interviews will be carried out on
board of directors and investors of the selected firms. The researcher will carry out participant
observation in the 60 firms in order to identify the state of shareholder activism and corporate
governance. Additionally, the selected firms' organizational documents will be utilized in order
to triangulate the data collected through interviews as well as contextualize the study. The
documents will include the firms' press release, investor briefings and relevant research journals
on the study area. Additional information on corporate governance and shareholder activism will
also be collected from the stock market as well as databases on shareholder activism events. To
measure corporate governance efficiency, the researcher will utilize Corporate Governance
Codes as well as data from the firms' corporate governance structure in order to determine its
3.4. Data analysis
The researcher will use IBM-SPSS Statistics Version 25 in data analysis (Aldrich, 2018).
Statistics on shareholder activism scores and that corporate governance will be presented in the
form of media, range, mean and standard deviation. In addition, Pearson correlation will be used
to correlate shareholder activism score with the variables of corporate governance scores. Linear
regression (Chatfield, 2018) will be utilized to assess the relationship between the efficiency of
shareholder activism and corporate governance.
3.5. Ethical consideration
Ethical issues are vital to consider when conducting research which will be adhered to in this
research process (Williman, 2017). Important steps will be observed before commencing the
study such as obtaining a consent letter and observing confidentiality during the research
process. The researcher intends to conduct this study by adhering to the necessary ethical limits
of confidentiality, objectivity, voluntarism, communication of aims of the study in a clear
information dissemination mechanism.
Research Work Plan
What to be done
Identifying the research topic.
Development and submission of the research proposal.
Professional research on the dependent and independent variables. This include:
Development of Literature Review
Preparation of ethics application
Access information permission from the relevant authorities.
Preparing and developing piloting instruments.
The researcher recruits research respondents using the convenience sampling technique
The start and end of data collection.
Data organization and cleaning
Initial and final steps of data analysis to begin.
Interpretation of data analysis
Planning the initial stages of writing up the final research project.
The write up begins
Completion of the write-up
Proofreading and Editing of the research project and attachment of the necessary appendixes.
Submission of the final research project.
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IN CORPORATE GOVERNANCE IN A DEVELOPING ARAB COuNTRY. Retrieved from
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Al-Bassam, W. M., Ntim, C. G., Opong, K. K., & Downs, Y. (2018). Corporate boards and
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Hussain, N., Rigoni, U., & Orij, R. P. (2018). Corporate governance and sustainability
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Ivanova, M. R. (2015). Influencing corporations through shareholder activism: the case of three
NGO-led campaigns in the UK (Doctoral dissertation, Cardiff University). Retrieved from
http://orca.cf.ac.uk/id/eprint/83835 Accessed 2th April 2019.
McCahery, J. A., Sautner, Z., & Starks, L. T. (2016). Behind the scenes: The corporate
governance preferences of institutional investors. The Journal of Finance, 71(6), 2905-2932.
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Pacces, A. M. (2018). Hedge Fund Activism in Corporate Governance. Retrieved from
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