Test Your Knowledge on Shareholder Activism and Corporate Governance

Study Notes

Shareholders have a duty to act as watchdogs over corporate activities and possible excesses.
Shareholder pressure has been shown to be effective in challenging excessive director remuneration, opposing schemes to protect the company and the incumbent directors from predators, and highlighting unsatisfactory performance.
Shareholder activists can leave the company in a worse position than before by dictating the direction of the company for their own advantage.
The intention of shareholder activism is short-term, trying to engineer a rise in the share price before selling out at a profit.
Loyalty bonuses, such as higher dividends, have been suggested for those holding their shares for four years to differentiate between short-term and genuine long-term investors.
Changes to tax law and corporate regulation in the UK have led to a shift from a longer-term owner's market to a shorter-term trader's market.
Institutional investors now account for less than 30% of UK share ownership, reducing their leverage over companies' behavior.
Foreign hedge funds can be supportive of well-managed companies, continuously keeping in touch.
British investment houses have taken their compliance responsibilities too lightly, voting only for management resolutions.
The market for control provides a desirable force for change and all shareholders benefit from a rising share price, but differentiation between short-term and long-term investors is necessary.