SHAREHOLDER ACTIVISM AND ITS EFFECTIVENESS: THE CONCEPTUAL PROCESS MODEL

Abstract

The shareholders have changed their approach with regards to the monitoring of their investments nowadays. They have become more involved with the companies in their investment portfolios. Perturbed by many corporate scandals, the shareholders are now adopting responsible investing as their common investment approach. Thus, this has made shareholder activism on the rise. This phenomenon has attracted many corporate governance scholars and policy makers. Through relational investing method, such as private meetings and negotiations shareholder activism flourishes. Shareholder activism is purported as one of the corporate governance issues that the management and the board of directors have to seriously take into consideration while implementing corporate governance practices in their establishments. Based on the shareholder activism literature review, the essential components are identified, thus, the suggested factors are integrated into shareholder activism overall process of shareholder activism in order to gain its effectiveness. Shareholder activism will be more effective if the two parties involved in the process aware of their corporate governance roles and the roles are being assimilated into the suggested model. The factors have been identified in the corporate governance literature, specifically on shareholder activism and the conceptual process model has been developed to model the interactions of the all the factors during shareholder activism takes place. The action in the process is an integral of determining the success of shareholder activism in influencing the behaviour of the targeted companies. This paper suggests the use of external consultants and the right channel and follow-ups as additional factors to the process model in ensuring the effectiveness of shareholder activism.