London Business School Roundtable on Shareholder Activism in the U.K.

Abstract:     
Finance scholars have produced little evidence of the effectiveness of direct attempts by institutional shareholders to improve corporate performance. What studies we have - focused mainly on the activities of U.S. pension funds - show no clear effect on shareholder returns. But a new study of shareholder activism in the U.K. looks promising.

The subject of the study is a Focus Fund, launched in 1998 by the U.K. investment firm Hermes, whose aim is to identify underperforming companies, propose changes to their managements and boards, and—in contrast to the practices of the best-known U.S. shareholder activists—work mainly behind the scenes with the companies to bring about those changes. In keeping with the more private nature of U.K. activism, which reflects in part the fewer restrictions on communication between companies and their investors than in the U S., the study's method of investigation is also notably different from the methods used in studies of U.S. investors. Four academics were allowed to examine Hermes' records of its engagements with companies, including letters, recordings and transcripts of telephone conversations, and the staff's personal notes and recollections.

Accepted Paper Series