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Advisory Governance Policy, Shareholder Voice, and Board Responsiveness: The Case of Majority Vote in Director Elections

Advisory Governance Policy, Shareholder Voice, and Board Responsiveness: The Case of Majority... This study investigates how adoption of advisory governance policy encourages firms to become more responsive to their shareholders over time. Although shareholder activism is costly and often viewed as unable to drive meaningful change, we identify increasing shareholder voice as an underlying mechanism to explain how advisory policy adoption ultimately reshapes board–shareholder relations. Drawing on signaling theory and behavioral views of board–shareholder dynamics, we test our predictions following the broad shift in corporate board voting policies from plurality to majority vote standards. While prior research shows that majority vote adoption has little to no direct impact on director elections, empirical results from 2,390 firm-year observations provide support for our hypotheses that adoption of this advisory electoral standard signals a willingness to hear shareholder concerns, leading to increased shareholder activism and, in turn, board responsiveness to shareholder proposals. Overall, our results help explain why some firms continue to fight the purely advisory policy and why an era of shareholder empowerment followed the majority vote campaign. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Business & Society SAGE

Advisory Governance Policy, Shareholder Voice, and Board Responsiveness: The Case of Majority Vote in Director Elections

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References (96)

Publisher
SAGE
Copyright
© The Author(s) 2022
ISSN
0007-6503
eISSN
1552-4205
DOI
10.1177/00076503221081003
Publisher site
See Article on Publisher Site

Abstract

This study investigates how adoption of advisory governance policy encourages firms to become more responsive to their shareholders over time. Although shareholder activism is costly and often viewed as unable to drive meaningful change, we identify increasing shareholder voice as an underlying mechanism to explain how advisory policy adoption ultimately reshapes board–shareholder relations. Drawing on signaling theory and behavioral views of board–shareholder dynamics, we test our predictions following the broad shift in corporate board voting policies from plurality to majority vote standards. While prior research shows that majority vote adoption has little to no direct impact on director elections, empirical results from 2,390 firm-year observations provide support for our hypotheses that adoption of this advisory electoral standard signals a willingness to hear shareholder concerns, leading to increased shareholder activism and, in turn, board responsiveness to shareholder proposals. Overall, our results help explain why some firms continue to fight the purely advisory policy and why an era of shareholder empowerment followed the majority vote campaign.

Journal

Business & Society – SAGE

Published: Feb 1, 2023

Keywords: board responsiveness; director elections; majority vote; shareholder voice; signaling theory

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