From Failed Shareholder Mobilization to Corporate Irresponsibility: How Shareholder Campaign Can Backfire

Cluster: Strategy and International Business

Title:  From Failed Shareholder Mobilization to Corporate Irresponsibility: How Shareholder Campaign Can Backfire

Abstract: Shareholder campaigns sometimes fail to mobilize stakeholders. Researchers have so far assumed that such failed campaigns are merely unproductive, creating costs for the activists without producing the intended benefits. This study explains why failed campaigns may even backfire, that is, undermine the goals of activists. We argue that campaigns that fail to mobilize stakeholders convey information about the preferences of stakeholders to firms, inducing managers to engage in activities that run counter to the goals of the campaigns. Specifically, when shareholder campaigns address environmental and social (E&S) issues, as they often do, a mobilization failure signals to target firms that E&S issues are of low priority to stakeholders. In turn, managers follow suit by deprioritizing E&S issues, creating an organizational environment in which corporate social irresponsibility can proliferate. An analysis of failed E&S shareholder proposals at U.S.-based publicly traded firms from 2007 to 2022 shows that failed E&S proposals induce corporate social irresponsibility. Further, we identify two factors that affect this relationship by influencing the inclinations managers have to follow the revealed preferences of their stakeholders or to advance E&S issues. Our study uncovers new consequences to shareholder mobilization failure.

Presenter Bio: Dr. Yifan Wei is currently an assistant professor of Strategy at Beedie School of Business, Simon Fraser University. He holds a doctoral degree in management from the Gies College of Business, University of Illinois at Urbana-Champaign. His research interests include corporate political strategy, entrepreneurship, and sustainability, with a particular focus on the institutional environment. Prior to academia, he also worked for the World Bank and Deloitte as a consultant.