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Collective Action Among Shareholder Activists

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Collective Action Among Shareholder Activists Collective Action Among Shareholder Activists Acta Wexionensia No 126/2007 Business Administration Collective Action Among Shareholder Activists Andreas Jansson Växjö University Press Collective Action Among Shareholder Activists. Thesis for the degree of Doc- tor of Philosophy, Växjö University, Sweden 2007. Series editor: Kerstin Brodén ISSN: 1404-4307 ISBN: 978-91-7636-573-1 Printed by: Intellecta Docusys, Göteborg 2007 Abstract Jansson, Andreas (2007). Collective Action Among Shareholder Activists. Acta Wexionensia No 126/2007. ISSN: 1404-4307, ISBN: 978-91-7636-573-1. Writ- ten in English. This study addresses the problem of explaining the emergence and viability of coalitions among shareholder activists. The formation of coalitions for purposes of shareholder activism is generally unexpected from a theoretical perspective. Potential shareholder activists typically rely on the exit mechanism rather than becoming actively involved in the governance of corporations, and they tend to be in a prisoner’s dilemma type of situation, which has a non-co-operative out- come. Moreover, unless co-operation can be expected from others, no individual shareholder will make costly contributions to a coalition. Still, minority share- holder coalitions exist. The purpose of this study is to develop a model that ac- counts for the emergence and viability of minority shareholder coalitions. Two ideal-typical minority shareholder coalitions are developed: the offensive minority shareholder coalition, and the defensive minority shareholder coalition. These are based primarily on contractual theory (transaction cost economics, agency theory and property rights theory) and take form under the assumption that economic ends alone motivate actors. The offensive minority shareholder coalition emerges to seize an opportunity to increase share price by means of voice; it is led by a coalitional entrepreneur who carries all costs, thereby induc- ing co-operation from passive shareholders. The defensive minority shareholder coalition emerges to safeguard the members’ investments from risks of expro- priation, which arise from increasing costs of using the exit mechanism; it is characterised by widespread active participation, since free riding further in- creases the risk of being expropriated. The model integrates the ideal types with results from three case studies of mi- nority shareholder coalitions. These case studies show that under certain condi- tions, coalition members act as if they consider the effects of their actions on their reputation within networks of shareholders; this has implications for a coa- lition’s emergence and viability. The case studies further show that controlling shareholders, under certain circumstances, will tend to act as if they consider the effects of their actions on their public image as perceived by relevant (present or future) stakeholders; this places a shareholder coalition in a different bargaining position. Keywords: Shareholder activism, collective action, minority shareholders, cor- porate governance. Table of Contents Table of Contents.................................................................................................. 5 Acknowledgments................................................................................................. 9 1. Introduction..................................................................................................... 10 1.1 Background....................................................................................... 10 1.2 Mechanisms of Governance of the Publicly Traded Corporation..... 13 1.3 Co-operative Shareholder Activism and the Problem of Collective Action ..................................................................................................... 16 1.4 Purpose of the Study......................................................................... 19 1.5 Methodology and Research Process ................................................. 19 1.5.1 Case Studies as Empirical Input .................................................... 20 1.5.2 The Logic and Uses of Ideal Types ............................................... 21 1.5.3 Development of Ideal-Typical Minority Shareholder Coalitions .. 25 1.5.4 Comparison With and Across Cases.............................................. 28 1.5.5 Integration into a Model of Minority Shareholder Coalitions........ 31 1.6 Structure of the Report...................................................................... 31 2. Activists and Coalitions of the Corporation.................................................... 33 2.1 Actors and Positions in Corporate Governance and Control ............ 33 2.1.1 Separation of Ownership and Control............................................ 33 2.1.2 The Partial Separation of Ownership from Control in Sweden ..... 35 2.1.3 Types of Shareholders and Minority Expropriation....................... 39 2.2 Shareholder Activism and Coalitions ............................................... 42 2.2.1 Shareholder Activism as a Control Mechanism............................. 43 2.2.2 Shareholder Coalitions................................................................... 48 2.2.3 Other Coalitions In and Around the Corporation........................... 54 2.2.4 Alternative Perspectives on Shareholder Activism........................ 55 2.3 Summary and Conclusion................................................................. 59 3. Offensive and Defensive Minority Shareholder Coalitions ............................ 61 3.1 Points of Departure for the Ideal Type Development ....................... 61 3.1.1 Overview of Contractual Theories................................................. 61 3.1.2 Methodological Assumptions ........................................................ 63 3.2 The Minority Shareholder and Corporate Governance..................... 65 3.2.1 The Nature of Equity Ownership................................................... 65 3.2.2 Corporate Governance in the Absence of ‘Friction’...................... 68 3.2.3 Corporate Governance in the Presence of ‘Friction’...................... 71 3.3 Outline of the Ideal Types ................................................................ 76 3.4 Opportunity Sets ............................................................................... 79 3.4.1 Opportunity Set Expansion............................................................ 79 3.4.2 Opportunity Set Diminishment...................................................... 81 3.5 Adaptation ........................................................................................ 83 5 3.5.1 Coalitional Entrepreneurship ......................................................... 86 3.5.2 Coalitional Organisation................................................................ 88 3.6 Corporate Relationships.................................................................... 94 3.7 Summary and Conclusions ............................................................... 96 4. Design and Completion of the Empirical Study............................................ 101 4.1 Selection of Case Studies................................................................ 101 4.1.1 Strategy for Selection of Case Studies......................................... 101 4.1.2 Limitations of the Empirical Material.......................................... 103 4.1.3 Application of Criteria and Final Selection ................................. 106 4.2 Design and Completion of Case Studies......................................... 108 4.2.1 Use of Archival Material ............................................................. 108 4.2.2 Structure and Contents of Interviews........................................... 109 4.2.3 Completion of Interviews ............................................................ 110 4.2.4 Quality of the Empirical Material................................................ 112 4.3 Analysis of the Material.................................................................. 115 4.3.1 Categorisation of the Material ..................................................... 115 4.3.2 Identification and Analysis of Divergences from the Ideal Types117 4.3.3 Measurement Problems ............................................................... 117 4.3.4 Cross-Case Analysis .................................................................... 118 4.3.5 Crafting an Explanation............................................................... 119 5. Case Study 1: Consilium............................................................................... 120 5.1 Case Background............................................................................ 120 5.1.1 Ownership Structure of Consilium .............................................. 121 5.1.2 Profile of the Coalition Participants............................................. 123 5.2 Case Narrative ................................................................................ 125 5.2.1 The Emergence and Activities of the Consilium Minority .......... 125 5.2.2 The Emergence and Announcement of the Core Co-operation ... 127 5.2.3 The Activities of the Core Co-operation...................................... 128 5.2.4 Extension of the Group................................................................ 132 5.2.5 The New Share Issue ................................................................... 134 5.2.6 Epilogue....................................................................................... 136 5.3 Emergence and Viability of the
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