Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    Board of Directors’ Responsiveness to Shareholders: Evidence from Shareholder Proposals
    05 Mar 2008Working Paper Summaries

    Board of Directors’ Responsiveness to Shareholders: Evidence from Shareholder Proposals

    by Yonca Ertimur, Fabrizio Ferri and Stephen R. Stubben
    How well do boards of directors respond to shareholder concerns? The recent wave of corporate scandals has raised questions about the effectiveness of boards in their monitoring role. The subsequent reform debate focused on enhancing boards' independence from management, increasing their accountability to shareholders through a different board election system, and improving boards' internal processes and practices. One direct example of this alleged lack of responsiveness to shareholder concerns is the historically low frequency of adoption of non-binding shareholder proposals receiving a majority vote, even when the vote is overwhelmingly in favor of the proposal and has been repeated for a number of years. Ignoring majority-vote shareholder proposals may be increasingly expensive, however, both for the targeted firms and for the individual directors. HBS professor Ferri and coauthors analyze the frequency of implementation of non-binding, majority-vote shareholder proposals and examine the determinants and consequences of the boards' implementation decisions. Key concepts include:
    • A dramatic increase in the frequency of implementation of non-binding, majority-vote shareholder proposals is consistent with a structural shift in the governance environment and assertions of a new atmosphere in boardrooms.
    • The likelihood of implementation of majority-vote shareholder proposals is higher when shareholder pressure and peer pressure are stronger.
    • Firms whose peers recently implemented a similar majority-vote shareholder proposal are more likely to follow suit.
    • Outside directors implementing a majority-vote shareholder proposal are more likely to retain their board seat and to experience gains (or lower losses) in other directorships.
    LinkedIn
    Email

    Author Abstract

    Using a sample of 620 non-binding, majority-vote (MV) shareholder proposals between 1997 and 2004, we analyze the frequency, determinants and consequences of boards' implementation decisions. The frequency of implementation has almost doubled after 2002, reaching more than 40%. Shareholder pressure (e.g. the voting outcome and the influence of the proponent) and the type of proposals are the main determinants of the implementation decision, while traditional governance indicators do not seem to matter. Outside directors implementing MV shareholder proposals experience a one-fifth reduction in the likelihood of losing their board seat and in the likelihood of losing other directorships.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: March 2008
    • HBS Working Paper Number: 08-048
    • Faculty Unit(s): Accounting and Management
      Trending
        • 31 Jan 2023
        • Op-Ed

        Can Insurance Technology Solve the Uninsured Driver Problem?

        • 17 Jan 2023
        • In Practice

        8 Trends to Watch in 2023

        • 27 Jan 2023
        • Op-Ed

        Have We Lost Sight of Integrity?

        • 31 Jan 2023
        • Research & Ideas

        It’s Not All About Pay: College Grads Want Jobs That ‘Change the World’

        • 20 May 2019
        • Research & Ideas

        Activist CEOs Are Rising Up—and Their Customers Are Listening

    Find Related Articles
    • Governance

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College