Institutional Investor Collective Engagements: Non-Activist Cooperation vs Activist Wolf Packs

69 Pages Posted: 10 Sep 2019 Last revised: 25 Oct 2019

See all articles by Gaia Balp

Gaia Balp

Bocconi University - Department of Law

Giovanni Strampelli

Bocconi University - Department of Law

Date Written: September 8, 2019

Abstract

This Article sets out the first comprehensive analytical framework for non-activist shareholder cooperation, showing that coordinated engagement by non-activist institutions can be a promising lever by which to foster a more effective and viable corporate governance role for non-activist institutional investors and provide an alternative to activist-driven ownership involvement.

After considering the diverging incentives structures of activist and non-activist investors and showing how they are reshaped in a context where investors collaborate in the engagement process, this Article shows how non-activist driven collective engagements are beneficial in several respects. Specifically, collective engagements favor the redistribution of engagement costs and, therefore, increase the net return earned by each institutional investor involved. In doing so, they also lower the free-rider problem, which generally affects institutional shareholders’ behavior. Moreover, the presence of a third-party entity coordinating the engagement initiatives can work as an effective tool for reducing potential regulatory risks, mainly concerning 13D group disclosures and Regulation FD.

Against this background, this Article concludes that, in order to promote non-activist collective engagement initiatives, there is the need for the SEC to provide greater clarity concerning the circumstances under which engaging collectively through an enabling organization will not, as a rule, be regarded as control-seeking or acting in concert, and will not trigger group filing obligations under Section 13 of the Securities and Exchange Act. In addition, the SEC should explicitly recognize the role of such coordinating entities — that adopt predefined frameworks governing the process of engagement and establish rules of conduct for participating investors — in promoting collective engagement initiatives in line with the applicable regulatory framework.

Keywords: investor activism, engagement, wolf pack, passive investing, hedge funds, institutional investors, corporate governance

JEL Classification: K22

Suggested Citation

Balp, Gaia and Strampelli, Giovanni, Institutional Investor Collective Engagements: Non-Activist Cooperation vs Activist Wolf Packs (September 8, 2019). 14 Ohio St. Bus. L.J., Forthcoming, Bocconi Legal Studies Research Paper No. 3449989, September 2019, Available at SSRN: https://ssrn.com/abstract=3449989 or http://dx.doi.org/10.2139/ssrn.3449989

Gaia Balp

Bocconi University - Department of Law ( email )

Via Roentgen, 1
Milan, Milan 20136
Italy

Giovanni Strampelli (Contact Author)

Bocconi University - Department of Law ( email )

Via Roentgen, 1
Milan, Milan 20136
Italy

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