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Shareholder Activism from a Complexity Theory Lens

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Shareholder Activism from a Complexity Theory Lens Corporate Boards at the Edge of Chaos: Shareholder Activism from a Complexity Theory Lens Thomas Kyritsis A thesis submitted in partial fulfilment of the requirements of the University of West London for the degree of Doctor of Philosophy June 2020 ABSTRACT The increasing influence of offensive shareholder activism driven by hedge funds has become a significant issue for corporate boards. The intervention of shareholder activists often challenges current strategies and the status quo of the corporate governance of publicly listed companies. Previous studies have utilised agency theory as a lens to explore and explain corporate governance issues. However, these studies have been unable to capture the complexity and the dynamics of Board interactions and provide a comprehensive view of the impact of shareholder activism. This thesis adopts complexity theory as an exploratory framework that views a Board as a complex co-evolving system and examines holistically its multiple interactions with shareholder activists and other stakeholders that together create the company’s social ecosystem. A multi-case study approach was chosen with three international hotel companies selected for analysis. The latter had all undergone one or more attacks from shareholder activists over the same period. Online documentary information was collected and used to construct three case studies. Template analysis was chosen as a tool to analyse the selected cases. A template framework was developed based on complexity concepts, principles and language to evaluate the impact of shareholder activism. The findings reveal that offensive shareholder activism influences the decision-making processes of the Boards of Directors. Macro-environmental conditions, a company’s vulnerabilities, shareholder activists’ attacks, Boards defence mechanisms and changes in a target company emerged from the analysis of the three cases. The thesis identified enabling conditions that facilitate effective corporate governance at a company level and collectively comprise an ‘enabling environment’. The main contribution of this study is the creation of an integrated model of shareholder activism that offers a chronological overview of the impact of shareholder activism and provides insights into the interactions of Boards with shareholder activists and other stakeholders. This model can be employed by researchers as a tool for analysing social dynamic phenomena and by practitioners to develop efficient and robust defence mechanisms for Boards and companies. i Dedication To my wife Anna and to my son Nikolas I love you both dearly ii Acknowledgements This PhD has been a long journey for me, during which many people have helped me and inspired me. It is impossible to include everyone, but you are all in my mind. First and foremost, I am sincerely grateful to my principal supervisor, Professor Alexandros Paraskevas for his continuous support and patience as well as his invaluable guidance throughout this project. He has greatly inspired me, and I hope that he can be proud of the final result. I have been extremely fortunate in having Professor Angela Roper as my second supervisor. Her comments and advice as well as her feedback and support have been instrumental in successfully completing this study. I would like to thank my current and previous employers who understood my needs and were flexible at different stages of this study. Also, a thank you goes to former and current colleagues with whom we shared many views about the hospitality industry. Many thanks go to my friends, especially Kostas, Ntimis, George Krokidis and to Vasilis for being, for so many years the most supportive and understanding uncle. Finally, a heartfelt thank you goes to my parents and to my sister who always believed on every decision I took. Your unconditional love and support mean the world to me, I hope that I have made you proud. iii TABLE OF CONTENTS Abstract………………………………………………………………………………………………...i Dedication……………………………………………………………………………………………..ii Acknowledgements…………………………………………………………………………………..iii Table of Contents…………………………………………………………………………………….iv List of Tables…………………………………………………………………………………………vii List of Figures………………………………………………………………………………………..viii List of Abbreviations…………………………………………………………………………………ix Glossary……………………………………………………………………………………………….x PART 1 - BACKGROUND TO THE STUDY CHAPTER ONE - INTRODUCTION ...................................................................................... 1 1.0 Introduction .................................................................................................................... 1 1.1 Rationale for this Study ................................................................................................. 3 1.2 Aim and Objectives ....................................................................................................... 9 1.3 Research Context ........................................................................................................ 10 1.4 Thesis Overview .......................................................................................................... 11 CHAPTER TWO - CORPORATE GOVERNANCE AND SHAREHOLDER ACTIVISM ....... 14 2.0 Introduction ................................................................................................................... 14 2.1 Corporate Governance .................................................................................................. 14 2.1.2 Board of Directors ...................................................................................................... 19 2.1.3 Agency Theory ........................................................................................................... 22 2.2 Shareholder Activism .................................................................................................... 23 2.2.1 The Nature of Shareholder Activism ........................................................................... 26 2.2.2 Hedge Funds as Shareholder Activists ....................................................................... 27 2.2.3 Hedge Fund Activism Research ................................................................................. 37 2.2.4 Activist Hedge Fund Tactics ....................................................................................... 39 2.3 Corporate Governance and Complexity Theory ............................................................ 41 2.4 Summary ...................................................................................................................... 43 CHAPTER THREE - COMPLEXITY THEORY .................................................................... 45 3.1 Complexity Theory ........................................................................................................ 45 3.1.1 Complexity Theory Research ..................................................................................... 47 3.2 The Evolution of Complexity Systems Thinking ............................................................. 50 3.3 The Board as a Complex Co-Evolving System (CCES) ................................................. 53 3.4 Complexity Principles .................................................................................................... 55 3.4.1 Connectivity and Interdependence ............................................................................. 56 iv 3.4.2 Initial Conditions ......................................................................................................... 58 3.4.3 Strange Attractors ...................................................................................................... 60 3.4.4 Feedback ................................................................................................................... 61 3.4.5 Fitness Landscapes ................................................................................................... 63 3.4.6 Far from Equilibrium and Dissipative Structures ......................................................... 64 3.4.7 Self-Organisation ....................................................................................................... 67 3.4.8 Exploration of the Space of Possibilities ..................................................................... 69 3.4.9 Emergence of New Order ........................................................................................... 70 3.4.10 Enabling Environment .............................................................................................. 72 3.5 Summary ...................................................................................................................... 73 CHAPTER FOUR - RESEARCH METHODOLOGY............................................................ 74 4.0 Introduction ................................................................................................................... 74 4.1 The Philosophical Approach of this Study ..................................................................... 74 4.2 Research Strategy ........................................................................................................ 76 4.2.1 Selection of Case Studies .......................................................................................... 79 4.3 Data Collection Techniques .......................................................................................... 82 4.3.1 Data Collection Process ............................................................................................. 84 4.4 Ethical Considerations
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