Exercising the ‘Governance Option’: Labour’s New Push to Reshape Financial Capitalism

Cambridge Journal of Economics 2019, 43, 891–916

Posted: 11 Mar 2020

See all articles by Stephen F. Diamond

Stephen F. Diamond

Santa Clara University - School of Law

Date Written: May 20, 2019

Abstract

New forms of stockholder activism call into question longstanding assumptions underpinning our system of corporate governance. Scholarship has largely failed to explain the basis for these new forms and, in particular, the differences among activists. Activists are not one undifferentiated mass. Both small activist hedge funds and large union-sponsored or -influenced pension funds use governance mechanisms to influence corporate behaviour. Pension funds, however, have a different set of incentives than hedge funds. The beneficiaries of these funds cannot easily switch between consumption and investment by buying or selling their holdings in firms. Thus, instead, institutional investors exercise an embedded ‘governance option’ found within shares of common stock to engage with firms. Organised labour, in particular, now uses its influence in pension funds to motivate progressive change by corporations. This form of activism has the potential to alter the balance of power between workers and capitalists in the era of financial capitalism.

Keywords: Firm, Market, Financial capitalism, Corporate governance, Stockholder activism, Pension funds, Labour unions

JEL Classification: G33, K22, L2

Suggested Citation

Diamond, Stephen F., Exercising the ‘Governance Option’: Labour’s New Push to Reshape Financial Capitalism (May 20, 2019). Cambridge Journal of Economics 2019, 43, 891–916, Available at SSRN: https://ssrn.com/abstract=3534838

Stephen F. Diamond (Contact Author)

Santa Clara University - School of Law ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

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