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Stakeholder Activism, Managerial Entrenchment, and the Congruence of Interests between Shareholders and

By Giovanni Cespa and Giacinta Cestone

Abstract

We argue that when stakeholder protection is left to the voluntary initiative of managers, concessions to social activists and pressure groups can turn into a selfentrenchment strategy for incumbent CEOs. Stakeholders other than shareholders thus benefit from corporate governance rules putting managers under a tough replacement threat. We show that a minimal amount of formal stakeholder protection, or the introduction of explicit covenants protecting stakeholder rights in the firm charter, may deprive CEOs of the alliance with powerful social activists, thus increasing managerial turnover and shareholder value. These results rationalize a recent trend whereby wellknown social activists like Friends of the Earth and active shareholders like CalPERS are showing a growing support for each other’s agendas

Topics: Corporate Governance, Managerial Entrenchment, Social Activists, Small Shareholders, Stakeholder Society We thank Ramon Caminal, Marco Pagano
Year: 2002
OAI identifier: oai:CiteSeerX.psu:10.1.1.197.1740
Provided by: CiteSeerX
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