Speaking With One Voice: Shareholder Collaboration on Activism

Abstract

I analyze how an activist shareholder (e.g., a hedge fund) with non-decisive ownership orchestrates shareholder collaboration to govern a firm via intervention. The premise is that the activist shareholder must collaborate with fellow active shareholders and win over passive shareholders simultaneously. I find that collaborating with fellow active shareholders spreads activism costs but, perhaps surprisingly, jeopardizes passive shareholders' support. This trade-off endogenizes the boundary of shareholder collaboration and challenges the notion that active shareholders' influence over a firm necessarily increases with their collective ownership. The total ownership of active shareholders engaging in a campaign is generally an unreliable empirical proxy for their real influence. Even if passive shareholders do not directly intervene in shareholder activism, their pro-management preference can ex-ante determine active shareholders' collaboration choices and thus corporate governance in the first place. I also find that shareholder collaboration makes boards more likely to settle with activists before proxy fights.

Keywords: Collaboration, Shareholder Activism, Institutional Shareholders, Communication

JEL Classification: G34, D83, G23