Corporate governance on stakeholder issues: shareholder activism as a guiding force

• Date: 01 May 2015
• DOI: http://doi.org/10.1002/pa.1529
• Published date: 01 May 2015
• Author: Nur Uysal,Katerina Tsetsura

■Academic Paper

Corporate governance on stakeholder issues:

shareholder activism as a guiding force

Nur Uysal

1

and Katerina Tsetsura

2

*

1

Diederich College of Communication, Marquette University, Milwaukee, Wisconsin, USA

2

Gaylord College of Journalism and Mass Communication, University of Oklahoma, Norman, Oklahoma, USA

Publicly traded corporations are under increasing amounts of pressure from society at large to redirect resources

toward maximizing the value that accrues to non-shareholding stakeholders of the organization. Building on the

management and public relations literature, this study proposes a shareholder–stakeholder engagement m odel on cor-

porate social responsibility (CSR)—the totality of corporate actions to meetsocietal norms and expectations. The study

argues that shareholder activist–corporate engagements on CSR issues can enhance the corporation’ssensitivityto

stakeholder issues through improvements in the stakeholder governance mechanisms—institutions that safeguard

stakeholder interests and maximize stakeholder welfare—within the corporations. Social shareholder activists, a special

type of stakeholders, can be a viable source of pressure in influencing corporations to improve weaknesses in stake-

holder governance mechanisms. Copyright © 2014 John Wiley & Sons, Ltd.

INTRODUCTION

In 2007, some dissident shareholders of the Exxon

Mobil Corp. urged thecompany to take a responsible

position on climate change by using their shares.

These shareholders are, by definition, internal stake-

holders (Freeman, 1984) and owners of a publicly

traded company. They believed that even though

Exxon had been delivering good financial returns

for its investors in recent years, the company still

lacks in its response to climate change (Erman,

2007). The Exxon shareholder case is an example of

a segment of shareholders, one specifictypeof

stakeholders, who can take action to change a

company’s behavior, even if the return on their

investment is already acceptable. Essentially, these

shareholder activists demand that the company

should do more to improve the environment. By

requesting corporations to improve the welfare of

non-shareholding stakeholders, shareholder activists

violate the norms of business—maximization of

profits. In a sense, these shareholders are engaged

in activism to advocate for the well-being of non-

shareholding stakeholders.

Lee and Lounsbury (2011) referred to this type of

shareholder activism on social and environmental

issues as social shareholder activism (p. 156). Social

shareholder activists believe they must achieve

more than financial profit. They voice their concerns

to change unjust and harmful corporate practices

that affect the welfare of non-shareholding

stakeholders. Social shareholder activism provides

an excellent context in which to study stakeholder

governance mechanisms—institutions that safeguard

stakeholder interests and maximize stakeholder

welfare—within the corporations. This paper argues

that social shareholder activists can exert pressures

on corporations to improve weaknesses in stake-

holder governance mechanisms.

Shareholder activism arises when shareholders

believe the corporate management has failed in its

duty; that is, they are dissatisfied with the perfor-

mance of the corporation. A shareholder activist is

defined as ‘an investor who tries to change the

status quo through “voice”, without a change in

*Correspondence to: Dr. Katerina Tsetsura, Gaylord College of

Journalism and Mass Communication, University of Oklahoma,

395 W. Lindsey St., R. 3000, Norman, OK 73019, USA.

E-mail: tsetsura@ou.edu

Journal of Public Affairs

Volume 15 Number 2 pp 210–219 (2015)

Published online 10 June 2014 in Wiley Online Library

(www.wileyonlinelibrary.com) DOI: 10.1002/pa.1529

Copyright © 2014 John Wiley & Sons, Ltd.