Cognitive mapping the topic of shareholder activism

Cognitive mapping the topic of shareholder activism

Joseph Kim-keung Ho

Independent Trainer

Hong Kong, China

Abstract: The topic of shareholder activism in the subject of Corporate Governance is complex. By making use of the cognitive mapping technique to conduct a brief literature review on shareholder activism topic, the writer renders a systemic image on the topic of shareholder activism. The result of the study, in the form of a cognitive map on shareholder activism, should be useful to those who are interested in the topics of cognitive mapping, literature review and shareholder activism.

Key words: Shareholder activism, cognitive mapping, literature review

Introduction

As a topic in Corporate Governance, shareholder activism is complex. It is thus useful to employ some learning tool to conduct its study, notably for literature review purpose. For a teacher in research methods, systems thinking and management, the writer is specifically interested in finding out how the cognitive mapping technique can be employed to go through a literature review on  shareholder activism. This literature review exercise is taken up and reported in this article.

On the cognitive mapping exercise for literature review

Literature review is an important intellectual learning exercise, and not just for doing final year dissertation projects for tertiary education students. On these two topics of intellectual learning and literature review, the writer has compiled some e-learning resources. They are the Managerial intellectual learning Facebook page and the Literature on literature review Facebook page. Conducting literature review with the cognitive mapping technique is not novel in the cognitive mapping literature, see Eden and Simpson (1989), Eden, Jones and Sims (1983), Open University (n.d) and the Literature on cognitive mapping Facebook page. In this article, the specific steps involved in the cognitive mapping exercise are as follows:

Step 1: gather some main points from a number of academic journal articles on Shareholder activism. This result in the production of a table (Table 1) with the main points and associated references.

Step 2: consolidate  the main points from Table 1 to come up with a table listing the cognitive map variables (re: Table 2).

Step 3: link up the cognitive  map variables in a plausible way to produce a cognitive map (re: Figure 1) on the topic under review.

The next section applies these three steps to produce a cognitive map on shareholder activism.

Descriptions of cognitive map variables on shareholder activism topic

From the reading of some academic articles on shareholder activism, a number of main points (e.g., viewpoints, concepts and empirical findings) were gathered by the  writer. They are shown in Table 1 with explicit referencing on the points.

Table 1: Main points from shareholder activism literature and referencing

Main points from the shareholder activism literature	Referencing
Point 1: "Shareholder activism can take many forms, such as proxy battles or shareholder resolutions put to the vote at annual general meetings....  However, in Korea, a lack of investor protection and almost non-existent shareholder rights have made these traditional methods of shareholder activism relatively impotent. Instead, shareholder activism adopted different strategies and was led almost exclusively by the NGO".	Dalton, B. and M. d. Rama. 2016. "Understanding the rise and decline of shareholder activism in South Korea: the explanatory advantages of the theory of Modes of Exchange " Asia Pacific  Business Review 22(3), Routledge: 468-486.
Point 2: "For some time now, shareholder resolutions have captured the imaginations of activists from outside of corporations who would like to change corporate behavior. Particularly since corporate takeover activity declined in the late 1980s as a way of fostering changes by top management and the board of directors, such resolutions have become a way for outside activists to make demands on management for changes in corporate practices. Changes desired by shareholder activists can range widely. For example, resolutions sometimes cover issues associated with managerial performance or governance. Other resolutions attempt to obtain shareholder votes on a broad array of social issues in which either social investors or activists are particularly interested...".	Graves, S.B., K. Rehbein and S. Waddock. 2001. "Fad and Fashion in Shareholder Activism: The Landscape of Shareholder Resolutions, 1988-1998" Business and Society Review 106(4): 293-314.
Point 3: "Shareholder activists face several challenges in trying to get a social policy shareholder resolution passed. First, large multinational corporations are usually targeted, their ownership is widely distributed, and many of their shareholders do not vote their own proxies. Second, from a resource-dependency perspective (Pfeffer & Salancik, 1978), it appears that corporate managers and board members control most of the corporate resources in which activists are interested, hence it is likely that the power to influence corporate practices resides not with social activists, but rather with the board and management".	Waddock, S. and S.B. Graves. 2004. "Understanding Shareholder Activism: which Corporations are Targeted?" Business & Society 43(3), September, Sage: 239-267.
Point 4: "After a social problem has been identified, management may be willing to engage in dialogue with the shareholder activists. There is evidence that resolutions may play this role because many of the resolutions are withdrawn when a productive dialogue has been initiated between social activists and the targeted corporation".	Waddock, S. and S.B. Graves. 2004. "Understanding Shareholder Activism: which Corporations are Targeted?" Business & Society 43(3), September, Sage: 239-267.
Point 5: "Shareholder activism has played a key role in changing corporate decision making over recent years (Goranova & Ryan, 2014; Smith, 1996). The increased shareholder scrutiny of corporate practices has been significant and is evident in a number of countries. As a result,media organizations talk about a “shareholder spring” (Burgess & McCrum, 2012). Shareholder concerns regarding corporate policies are predominantly focused on the efficiency of corporate governance practices within a firm".	Stathopoulos, K. and G. Voulgaris. 2016. "The Importance of Shareholder Activism: The Case of Say-On-Pay" Corporate Governance 24(3), Wiley: 359-370.
Point 6: "Firm size and performance are among the most important firm-related determinants of shareholder initiatives linked with activism (Cai & Walkling, 2011; Cziraki, Renneboog, & Szilagyi, 2010; Karpoff, Malatesta, & Walkling, 1996; Smith,  1996). Large firms are the focus of attention for activist shareholders, partly because they are more likely to attract attention and hence shareholders can expect to have greater public support for their proposals (Rehbein, Waddock, & Graves, 2004; Rowley& Moldoveanu, 2003). Large firms are also more subject to corporate governance issues, which means that activism can create more value for the shareholders".	Stathopoulos, K. and G. Voulgaris. 2016. "The Importance of Shareholder Activism: The Case of Say-On-Pay" Corporate Governance 24(3), Wiley: 359-370.
Point 7: "Shareholder activism is neither an exclusively American nor a new phenomenon. Many European companies have heard the expression of the voice of shareholders over the last decade. In 2013, companies in many European countries were confronted with shareholder discontentment".	Der Elst, C.V. 2014. "The corporate response to shareholder activism" ERA Forum 15, Springer: 229-242.
Point  8: "The development towards a more dispersed ownership structure in continental Europe, at least for the largest listed companies, came simultaneously with the development of other types of major shareholders—i.e., beyond families, non-financial companies and governments—acquiring large voting blocks. Mutual funds (both national and international), private equity funds and hedge funds stepped in as major shareholders".	Der Elst, C.V. 2014. "The corporate response to shareholder activism" ERA Forum 15, Springer: 229-242.
Point 9: "In the literature a variety of actions of shareholders have been identified as shareholder activism. Most commonly, activism is divided between private actions and public moves. Private activism is obviously unobservable and can take many forms like private negotiations with management and the board of directors, private consultations and meetings, private phone calls and entering into dialogue with directors and management. It is also called “quiet diplomacy”. Public activism includes “press campaigns, blogging and other e-ways of public “naming and shaming”, openly talking to other shareholders, putting forward shareholder resolutions, calling shareholder meetings and—ultimately—seeking to replace individual directors or the entire board.”..".	Der Elst, C.V. 2014. "The corporate response to shareholder activism" ERA Forum 15, Springer: 229-242.
Point 10: "Shareholder activism is defined by Sjostrom (2008) as “the use of ownership position to actively influence company policy and practice.” Although activism encompasses activities such as letter writing, proxy battles, litigation, publicity campaigns, discussions with corporate managers, and participating in shareholder meetings (Aguilera et al., 2015), most corporate governance research related to shareholder activism focuses on the filing of shareholder proposals, a written recommendation that a shareholder formally submits to a publicly traded company, advocating that the company take a particular course of action".	Marquardt, C. and C. Wiedman. 2016. "Can Shareholder Activism Improve Gender Diversity on Corporate Boards?" Corporate Governance 24(4), Wiley: 443-461.
Point 11: "While in the past shareholders had typically targeted firms that were underperforming or poorly governed (Karpoff, Malatesta, & Walkling, 1996), shareholder activism more recently addresses perceived deficiencies in corporate social responsibilities, including issues related to the environment, corporate political activities, or human rights violations. Increasing the gender diversity of corporate boards is one such social issue that activists have pursued with increasing frequency...".	Marquardt, C. and C. Wiedman. 2016. "Can Shareholder Activism Improve Gender Diversity on Corporate Boards?" Corporate Governance 24(4), Wiley: 443-461.
Point 12: "...there is a lot of variation in large shareholder activism. Some large shareholders such as the institutional investor CalPERS spend significant resources on monitoring the firms they invest in (e.g. Smith 1996), whereas others do not engage in activism at all. There is also great variation in styles of activism. Some large shareholders prefer long-term activism such as analyst coverage and relationship investing (e.g. Warren Buffett’s long term relationship with Coca Cola); others engage in short-term but forceful activism (e.g. Carl Icahn’s showdown with Time Warner, or Kirk Kerkorian’s showdown with General Motors). It is unclear why such variation exists".	Oded, J. and Y. Wang. 2010. "On the different styles of large shareholders' activism" Econ Gov 11, Springer: 229-267.
Point 13: "...it is unclear how activism enhances firm value, if at all. Some studies find activism to be associated with higher firm value, whereas others find no relation. Moreover, not only activism (monitoring, takeovers, relationship-investing) but also alternative protective mechanisms such as laws, regulations, and corporate culture can affect firm value (e.g. Bebchuk et al. 2009). In particular, it is well established that countries with relatively strong shareholder protection, such as the US and UK, feature higher valuation of corporate assets relative to regions with poor shareholder protection, such as Italy and East Asia (Shleifer and Vishny 1997; La Porta et al. 2002). It is less clear, however, how activism interacts with such alternative protective mechanisms to determine firm value".	Oded, J. and Y. Wang. 2010. "On the different styles of large shareholders' activism" Econ Gov 11, Springer: 229-267.
Point 14: "Shareholder activism is the way in which shareholders can assert their power as owners of the company to influence its behaviour and covers a broad spectrum of activities (European Corporate Governance Institute).6 Shareholder activism can be collaborative, in particular, when it is conducted in private. Another productive definition is ‘Shareholder activism involves any action taken by minority investors to improve the governance of companies, ensure fair treatment of all shareholders and raise company value over time’...".	Sharma, S.U. 2016. "A Study of Small Shareholders' Attitude towards Small-shareholder Activism" Indian Journal of Corporate Governance 9(1), Sage: 67-82.
Point 15: "A shareholder activist is the one who does not long for corporate control yet is instrumental in changing the status quo through voice".	Sharma, S.U. 2016. "A Study of Small Shareholders' Attitude towards Small-shareholder Activism" Indian Journal of Corporate Governance 9(1), Sage: 67-82.
Point 16: "Shareholder activism has been largely neglected in the few available studies on corporate governance in sub Saharan Africa".	Amao, O. and K. Amaeshi. 2008. "Galvanising Shareholder Activism: A Prerequisite for Effective Corporate Governance and Accountability in Nigeria" Journal of Business Ethics 82, Springer: 119-130.
Point 17: "A growing literature studies institutional investors mobilizing as a social movement, developing increasing power to influence the behavior of business firms (Useem, 1993; Davis and Thompson, 1994; Donaldson, 1994; Monks and Minow, 1995). Yet, in comparison to the growing amount of research into the role of institutional investors in shaping the corporate governance agenda, the academic literature is relatively silent about the role of activist funds in shaping the agenda of corporate social responsibility (for an exception, see Hoffman, 1996). We know little about the trends, players and success trajectories of social issues shareholder campaigns. What types of institutional investors are actively involved in pursuing social agendas? What concerns do they highlight?".	Proffitt, Jr., W.T. and A. Spicer. 2006. "Shaping the shareholder activism agenda: institutional investors and global social issues" Strategic Organization 4(2), Sage: 165-190.
Point 18: "Researchers focusing on the mobilization of institutional investors as shareholder activists have tended to start their analytic clocks at the time when public pension funds began to receive the most attention, around the founding of the Council of Institutional Investors in 1985".	Proffitt, Jr., W.T. and A. Spicer. 2006. "Shaping the shareholder activism agenda: institutional investors and global social issues" Strategic Organization 4(2), Sage: 165-190.

With a set of main points collected, the writer produces a set of cognitive map variables. These variables are informed by the set of main points from Table 1. These variables are presented in Table 2.

Table 2: Cognitive map variables based on Table 1

Cognitive map variables	Literature review points
Variable 1: Drivers of interest in shareholder activism	Point 5: "Shareholder activism has played a key role in changing corporate decision making over recent years (Goranova & Ryan, 2014; Smith, 1996). The increased shareholder scrutiny of corporate practices has been significant and is evident in a number of countries. As a result,media organizations talk about a “shareholder spring” (Burgess & McCrum, 2012). Shareholder concerns regarding corporate policies are predominantly focused on the efficiency of corporate governance practices within a firm". Point 7: "Shareholder activism is neither an exclusively American nor a new phenomenon. Many European companies have heard the expression of the voice of shareholders over the last decade. In 2013, companies in many European countries were confronted with shareholder discontentment". Point  8: "The development towards a more dispersed ownership structure in continental Europe, at least for the largest listed companies, came simultaneously with the development of other types of major shareholders—i.e., beyond families, non-financial companies and governments—acquiring large voting blocks. Mutual funds (both national and international), private equity funds and hedge funds stepped in as major shareholders". Point 18: "Researchers focusing on the mobilization of institutional investors as shareholder activists have tended to start their analytic clocks at the time when public pension funds began to receive the most attention, around the founding of the Council of Institutional Investors in 1985".
Variable 2: Improve intellectual understanding of  shareholder activism	Point 9: "In the literature a variety of actions of shareholders have been identified as shareholder activism. Most commonly, activism is divided between private actions and public moves. Private activism is obviously unobservable and can take many forms like private negotiations with management and the board of directors, private consultations and meetings, private phone calls and entering into dialogue with directors and management. It is also called “quiet diplomacy”. Public activism includes “press campaigns, blogging and other e-ways of public “naming and shaming”, openly talking to other shareholders, putting forward shareholder resolutions, calling shareholder meetings and—ultimately—seeking to replace individual directors or the entire board.”..". Point 10: "Shareholder activism is defined by Sjostrom (2008) as “the use of ownership position to actively influence company policy and practice.” Although activism encompasses activities such as letter writing, proxy battles, litigation, publicity campaigns, discussions with corporate managers, and participating in shareholder meetings (Aguilera et al., 2015), most corporate governance research related to shareholder activism focuses on the filing of shareholder proposals, a written recommendation that a shareholder formally submits to a publicly traded company, advocating that the company take a particular course of action". Point 12: "...there is a lot of variation in large shareholder activism. Some large shareholders such as the institutional investor CalPERS spend significant resources on monitoring the firms they invest in (e.g. Smith 1996), whereas others do not engage in activism at all. There is also great variation in styles of activism. Some large shareholders prefer long-term activism such as analyst coverage and relationship investing (e.g. Warren Buffett’s long term relationship with Coca Cola); others engage in short-term but forceful activism (e.g. Carl Icahn’s showdown with Time Warner, or Kirk Kerkorian’s showdown with General Motors). It is unclear why such variation exists". Point 14: "Shareholder activism is the way in which shareholders can assert their power as owners of the company to influence its behaviour and covers a broad spectrum of activities (European Corporate Governance Institute).6 Shareholder activism can be collaborative, in particular, when it is conducted in private. Another productive definition is ‘Shareholder activism involves any action taken by minority investors to improve the governance of companies, ensure fair treatment of all shareholders and raise company value over time’...". Point 15: "A shareholder activist is the one who does not long for corporate control yet is instrumental in changing the status quo through voice".
Variable 3: Effective shareholder activism practices	Point 1: "Shareholder activism can take many forms, such as proxy battles or shareholder resolutions put to the vote at annual general meetings....  However, in Korea, a lack of investor protection and almost non-existent shareholder rights have made these traditional methods of shareholder activism relatively impotent. Instead, shareholder activism adopted different strategies and was led almost exclusively by the NGO". Point 2: "For some time now, shareholder resolutions have captured the imaginations of activists from outside of corporations who would like to change corporate behavior. Particularly since corporate takeover activity declined in the late 1980s as a way of fostering changes by top management and the board of directors, such resolutions have become a way for outside activists to make demands on management for changes in corporate practices. Changes desired by shareholder activists can range widely. For example, resolutions sometimes cover issues associated with managerial performance or governance. Other resolutions attempt to obtain shareholder votes on a broad array of social issues in which either social investors or activists are particularly interested...". Point 3: "Shareholder activists face several challenges in trying to get a social policy shareholder resolution passed. First, large multinational corporations are usually targeted, their ownership is widely distributed, and many of their shareholders do not vote their own proxies. Second, from a resource-dependency perspective (Pfeffer & Salancik, 1978), it appears that corporate managers and board members control most of the corporate resources in which activists are interested, hence it is likely that the power to influence corporate practices resides not with social activists, but rather with the board and management". Point 4: "After a social problem has been identified, management may be willing to engage in dialogue with the shareholder activists. There is evidence that resolutions may play this role because many of the resolutions are withdrawn when a productive dialogue has been initiated between social activists and the targeted corporation". Point 11: "While in the past shareholders had typically targeted firms that were underperforming or poorly governed (Karpoff, Malatesta, & Walkling, 1996), shareholder activism more recently addresses perceived deficiencies in corporate social responsibilities, including issues related to the environment, corporate political activities, or human rights violations. Increasing the gender diversity of corporate boards is one such social issue that activists have pursued with increasing frequency...".
Variable 4: Learn from shareholder activism practices	Point 6: "Firm size and performance are among the most important firm-related determinants of shareholder initiatives linked with activism (Cai & Walkling, 2011; Cziraki, Renneboog, & Szilagyi, 2010; Karpoff, Malatesta, & Walkling, 1996; Smith,  1996). Large firms are the focus of attention for activist shareholders, partly because they are more likely to attract attention and hence shareholders can expect to have greater public support for their proposals (Rehbein, Waddock, & Graves, 2004; Rowley& Moldoveanu, 2003). Large firms are also more subject to corporate governance issues, which means that activism can create more value for the shareholders". Point 13: "...it is unclear how activism enhances firm value, if at all. Some studies find activism to be associated with higher firm value, whereas others find no relation. Moreover, not only activism (monitoring, takeovers, relationship-investing) but also alternative protective mechanisms such as laws, regulations, and corporate culture can affect firm value (e.g. Bebchuk et al. 2009). In particular, it is well established that countries with relatively strong shareholder protection, such as the US and UK, feature higher valuation of corporate assets relative to regions with poor shareholder protection, such as Italy and East Asia (Shleifer and Vishny 1997; La Porta et al. 2002). It is less clear, however, how activism interacts with such alternative protective mechanisms to determine firm value". Point 16: "Shareholder activism has been largely neglected in the few available studies on corporate governance in sub Saharan Africa". Point 17: "A growing literature studies institutional investors mobilizing as a social movement, developing increasing power to influence the behavior of business firms (Useem, 1993; Davis and Thompson, 1994; Donaldson, 1994; Monks and Minow, 1995). Yet, in comparison to the growing amount of research into the role of institutional investors in shaping the corporate governance agenda, the academic literature is relatively silent about the role of activist funds in shaping the agenda of corporate social responsibility (for an exception, see Hoffman, 1996). We know little about the trends, players and success trajectories of social issues shareholder campaigns. What types of institutional investors are actively involved in pursuing social agendas? What concerns do they highlight?".

The next step is to relate the cognitive map variables to make up a cognitive map on shareholder activism. The cognitive map and its explanation are presented in the next section.

A cognitive map on shareholder activism and its interpretation

By relating the four variables identified in Table 2, the writer comes up with a cognitive map on shareholder activism, as shown in Figure 1.

These cognitive  map variables, four of them altogether, are related to constitute a systemic image of shareholder activism. The links in the cognitive map (re: Figure 1) indicate direction of influences between variables. The + sign shows that an increase in one variable leads to an increase in another variable while a -ve sign tells us that in increase in one variable leads to a decrease in another variable.  If there no signs shown on the arrows, that means the influences can be positive or negative.  For further information on shareholder activism, readers are referred to the Literature on shareholder activism Facebook page.

Concluding remarks

The cognitive mapping exercise captures in one diagram some of the main variables involved in shareholder activism. The resultant cognitive map promotes an exploratory way to study shareholder activism in a holistic tone. The experience of the cognitive mapping exercise is that it can be a quick, efficient and entertaining way to explore a complex topic such as shareholder activism in Corporate Governance. Finally, readers who are interested in cognitive mapping should also find the article informative on this mapping topic.

Bibliography

1.      Amao, O. and K. Amaeshi. 2008. "Galvanising Shareholder Activism: A Prerequisite for Effective Corporate Governance and Accountability in Nigeria" Journal of Business Ethics 82, Springer: 119-130.

2.      Dalton, B. and M. d. Rama. 2016. "Understanding the rise and decline of shareholder activism in South Korea: the explanatory advantages of the theory of Modes of Exchange " Asia Pacific  Business Review 22(3), Routledge: 468-486.

3.      Der Elst, C.V. 2014. "The corporate response to shareholder activism" ERA Forum 15, Springer: 229-242.

4.      Eden, C. and P. Simpson. 1989. "SODA and cognitive mapping in practice", pp. 43-70, in Rosenhead, J. (editor) Rational Analysis for a Problematic World, Wiley, Chichester.

5.      Eden, C., C. Jones and D. Sims. 1983. Messing about in Problems: An informal structured approach to their identification and management, Pergamon Press, Oxford.

6.      Graves, S.B., K. Rehbein and S. Waddock. 2001. "Fad and Fashion in Shareholder Activism: The Landscape of Shareholder Resolutions, 1988-1998" Business and Society Review 106(4): 293-314.

7.      Literature on cognitive mapping Facebook page, maintained by Joseph, K.K. Ho (url address: https://www.facebook.com/Literature-on-cognitive-mapping-800894476751355/).

8.      Literature on literature review Facebook page, maintained by Joseph, K.K. Ho (url address: https://www.facebook.com/literature.literaturereview/).

9.      Literature on shareholder activism Facebook page, maintained by Joseph, K.K. Ho (url address: https://www.facebook.com/literature.shareholder.activism/).

10. Managerial intellectual learning Facebook page, maintained by Joseph, K.K. Ho (url address: https://www.facebook.com/managerial.intellectual.learning/).

11. Marquardt, C. and C. Wiedman. 2016. "Can Shareholder Activism Improve Gender Diversity on Corporate Boards?" Corporate Governance 24(4), Wiley: 443-461.

12. Oded, J. and Y. Wang. 2010. "On the different styles of large shareholders' activism" Econ Gov 11, Springer: 229-267.

13. Open University. n.d. "Sign graph" Systems Thinking and Practice (T552): Diagramming, Open University, U.K. (url address: http://systems.open.ac.uk/materials/T552/) [visited at April 10, 2017].

14. Proffitt, Jr., W.T. and A. Spicer. 2006. "Shaping the shareholder activism agenda: institutional investors and global social issues" Strategic Organization 4(2), Sage: 165-190.

15. Sharma, S.U. 2016. "A Study of Small Shareholders' Attitude towards Small-shareholder Activism" Indian Journal of Corporate Governance 9(1), Sage: 67-82.

16. Stathopoulos, K. and G. Voulgaris. 2016. "The Importance of Shareholder Activism: The Case of Say-On-Pay" Corporate Governance 24(3), Wiley: 359-370.

17. Waddock, S. and S.B. Graves. 2004. "Understanding Shareholder Activism: which Corporations are Targeted?" Business & Society 43(3), September, Sage: 239-267.