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New research on business and shareholder relations from Harvard Business School faculty on issues including how the cultural background of executives affects their communications with investors, how managers can identify promising shareholder proposals on sustainability issues, and what information is really communicated during earnings calls with shareholders.
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The Opioid Crisis, CEO Pay, and Shareholder Activism

Re: Suraj Srinivasan

In 2020, AmerisourceBergen Corporation, a Fortune 50 company in the drug distribution industry, agreed to settle thousands of lawsuits filed nationwide against the company for its opioid distribution practices, which critics alleged had contributed to the opioid crisis in the US. The $6.6 billion global settlement caused a net loss larger than the cumulative net income earned during the tenure of the company’s CEO, which began in 2011. In addition, AmerisourceBergen’s legal and financial troubles were accompanied by shareholder demands aimed at driving corporate governance changes in companies in the opioid supply chain. Determined to hold the company’s leadership accountable, the shareholders launched a campaign in early 2021 to reject the pay packages of executives. Should the board reduce the executives’ pay, as of means of improving accountability? Or does punishing the AmerisourceBergen executives for paying the settlement ignore the larger issue of a business’s responsibility to society? Harvard Business School professor Suraj Srinivasan discusses executive compensation and shareholder activism in the context of the US opioid crisis in his case, “The Opioid Settlement and Controversy Over CEO Pay at AmerisourceBergen.”

As Climate Fears Mount, More Investors Turn to 'ESG' Funds Despite Few Rules

by Rachel Layne

Regulations and ratings remain murky, but that's not deterring climate-conscious investors from paying more for funds with an ESG label. Research by Mark Egan and Malcolm Baker sizes up the premium these funds command. Is it time for more standards in impact investing?

ESG Activists Met the Moment at ExxonMobil, But Did They Succeed?

by Lane Lambert

Engine No. 1, a small hedge fund on a mission to confront climate change, managed to do the impossible: Get dissident members on ExxonMobil's board. But lasting social impact has proved more elusive. Case studies by Mark Kramer, Shawn Cole, and Vikram Gandhi look at the complexities of shareholder activism.

Shareholder Activism and Firms’ Voluntary Disclosure of Climate Change Risks

by Caroline Flammer, Michael W. Toffel, and Kala Viswanathan

Shareholder resolutions typically fail, and often by a wide margin. So why do active investors bother? It turns out that resolutions nonetheless can influence corporate transparency. Specifically, after being targeted with shareholder resolutions on environmental topics, this research shows that companies are more likely to publicly disclose their climate change risks—and that such disclosure increases these companies’ valuation.

Voting Trusts and Antitrust: Rethinking the Role of Shareholder Rights and Private Litigation in Public Regulation, 1880s to 1930s

by Naomi R. Lamoreaux and Laura Phillips Sawyer

Historically, judges were reluctant to intervene in corporations’ internal affairs and displayed a particular wariness of shareholders’ derivative suits. By the end of the 19th century, however, they had begun to revise their views and to see shareholders’ private actions as useful checks on economic concentration.

The Changing Landscape of Auditor Litigation and Its Implications for Audit Quality

by Colleen Honigsberg, Shivaram Rajgopal, and Suraj Srinivasan

Data from 1996 to 2016 shows that shareholder litigation against auditors has declined in recent years. Empirical evidence shows that Rule 10b-5, the Securities Act statute used for class action lawsuits, has lost its bite for use against auditors. This decline is driven, at least in part, by the US Supreme Court’s narrowing of liability standards. These findings suggest weakened shareholder protection with profound implications for investors.

Sponsorship Programs Could Actually Widen the Gender Gap

by Carmen Nobel

Companies increasingly provide sponsors to help women get ahead. But certain aspects of sponsorship programs can hinder women instead, according to experimental research by Nancy R. Baldiga and Katherine B. Coffman. Open for comment; 0 Comments.

Op-Ed: Why BlackRock CEO Larry Fink Is Not a Socialist

by Bill George

BlackRock CEO Larry Fink’s open letter to CEOs has reignited the “shareholders versus stakeholders” debate. Bill George says it's actually not much of a debate: mission-driven, values-centered companies perform better. Open for comment; 0 Comments.

The House Wants to Squelch Voices of ‘Small’ Shareholders. Research Shows Those Voices Matter.

by Carmen Nobel

Company management frequently seeks to exclude investor proposals even though some ultimately win shareholder support, according to new research by Eugene F. Soltes, Suraj Srinivasan, and Rajesh Vijayaraghavan. Open for comment; 0 Comments.

Should Industry Competitors Cooperate More to Solve World Problems?

by Sean Silverthorne

George Serafeim has a theory that if industry competitors collaborated more, big world problems could start to be addressed. Is that even possible in a market economy? Open for comment; 0 Comments.

The Relevance of Broker Networks for Information Diffusion in the Stock Market

by Marco Di Maggio, Francesco Franzoni, Amir Kermani, and Carlo Sommavilla

How information is generated by market participants, shared, and incorporated into prices is one of the key questions for understanding how financial markets operate. This study finds that intermediaries play a large role in the acquisition and dissemination of private information, which they extract from order flow and, more generally, from interaction with clients.

Should Management Be Primarily Responsible to Shareholders?

by James Heskett

SUMMING UP Opinions among James Heskett's readers are divided over a critical corporate governance question: Should management put the shorter-term interests of shareholders over the longer-term needs of the company? Open for comment; 0 Comments.

Managers' Cultural Background and Disclosure Attributes

by Francois Brochet, Gregory S. Miller, Patricia Naranjo, and Gwen Yu

How does the cultural background of executives affect the way in which they communicate with investors? This paper examines the impact of cultural backgrounds of individual managers based on their ethnic heritage on their disclosure narrative during earnings conference calls. Among the findings, managers from individualistic cultures are likely to use a more positive tone, use greater self-reference, and make fewer apologies in the Q&A portion of the conference calls. The capital market reacts to disclosure style in a predictable way: optimistic tone is associated with a positive stock return following the call. However, market participants do not adjust their interpretation of disclosure tone for firm value based on the cultural background of the management team.

Corporate Tax Strategies Mirror Personal Returns of Top Execs

by Roberta Holland

Top executives who are inclined to reduce personal taxes might also benefit shareholders in their companies, concludes research by Gerardo Pérez Cavazos and Andreya M. Silva. Open for comment; 0 Comments.

Shareholder Activism on Sustainability Issues

by Jody Grewal, George Serafeim, and Aaron Yoon

Shareholder proposals on environmental, social, and governance (ESG) topics have more than doubled in the last two decades. Testing the effect that ESG proposals have on firms’ subsequent ESG performance and market valuation, the authors find a considerable portion (42 percent) of ESG proposals to be financially beneficial and associated with subsequent increases in environmental and social performance, too. Managers need to identify significant sustainability issues, based on their industry, wisely because errors could be value-destroying as the authors show declines in financial value for the rest of the sample (58 percent).

What Else Do Shareholders Want? Shareholder Proposals Contested by Firm Management

by Eugene F. Soltes, Suraj Srinivasan, and Rajesh Vijayaraghavan

Shareholder proposals are an important way for investors to communicate their demands to a firm’s management and board of directors. Here the authors gain insight into how such proposals can be excluded from a shareholder vote by management appealing to the Securities and Exchange Commission (SEC). Among the findings, firm managements seek to exclude almost half the proposals suggested by shareholders with nearly a quarter ultimately excluded with permission of the SEC.

The Real Duty of the Board of Directors

by Robert G. Eccles & Tim Youmans

Robert G. Eccles and Tim Youmans argue that a board's primary duty is not to the shareholders, but to the corporation itself. Open for comment; 0 Comments.

Materiality in Corporate Governance: The Statement of Significant Audiences and Materiality

by Robert G. Eccles & Tim Youmans

Contrary to common belief, a board’s duty is to the interests of the corporation itself rather than the particular audience of shareholders. While the board can choose to deem shareholders as the only significant audience, it does not have to do so. The board must decide which audiences are most significant for the ability of the corporation to create value over the short, medium, and long term. Then it can lay the foundation for improved corporate reporting.