Social Entrenchment: Social Network Cohesion and Board Responsiveness to Shareholder Activism, 1998-2013

• In Event: 481 - Section on Organizations, Occupations and Work Paper Sessions. Organizational Governance, Deviance and Protest

Abstract

Shareholder activism has become an increasingly prominent means for investors to voice their concerns in corporate governance matters. Past work examines a number of firm and proponent characteristics that affect shareholder proposal targeting, voting, and implementation outcomes. However, we know little about how social network ties among firms and corporate leaders affect shareholder activism. Prior research suggests that social cohesion among corporate leaders helps preserve managerial control. Drawing on this tradition, I argue that social cohesion in the board overlap network helps managers and firms resist shareholder activism. I test these ideas with data on overlapping board appointments and shareholder proposals for S&P 1500 firms. To examine how network cohesion varies across the network topology, I apply a hierarchical cohesive blocking routine that characterizes how firms are nested within more or less structurally cohesive substructures. Results from indicate that deeply nested firms (firms in more cohesive substructures) are more likely to be targeted by activists but these proposals draw less voting support and are less likely to be implemented by the board. I argue that structural cohesion helps support norms of reciprocity and mutual regard among corporate elites that is useful for maintaining managerial control and resisting shareholder activism.

Author

• Richard Benton, University of Illinois