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Stakeholder Activism, Managerial Entrenchment, and the Congruence of Interests between Shareholders and Stakeholders

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Abstract
We argue that when stakeholder protection is left to the voluntary initiative of managers, concessions to social activists and pressure groups can turn into a self-entrenchment strategy for incumbent CEOs. Stakeholders other than shareholders thus benefit from corporate governance rules putting managers under a tough replacement threat. We show that a minimal amount of formal stakeholder protection, or the introduction of explicit covenants protecting stakeholder rights in the firm charter, may deprive CEOs of the alliance with powerful social activists, thus increasing managerial turnover and shareholder value. These results rationalize a recent trend whereby well-known social activists like Friends of the Earth and active shareholders like CalPERS are showing a growing support for each other's agendas.

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  • Giovanni Cespa & Giacinta Cestone, 2002. "Stakeholder Activism, Managerial Entrenchment, and the Congruence of Interests between Shareholders and Stakeholders," UFAE and IAE Working Papers 528.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  • Handle: RePEc:aub:autbar:528.02
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    Cited by:

    1. Jinji, Naoto & 神事, 直人, 2005. "Strategic Environmental and Trade Policies with Corporate Environmentalism," Discussion Papers 2004-10, Graduate School of Economics, Hitotsubashi University.
    2. Erik Berglöf & Mike Burkart, 2003. "European takeover regulation [‘Efficient and inefficient sales of corporate control’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(36), pages 171-213.
    3. Aleix Calveras & Juan José Ganuza, 2004. "Responsabilidad social corporativa. Una visión desde la teoría económica," Economics Working Papers 797, Department of Economics and Business, Universitat Pompeu Fabra.
    4. Alexandra ZBUCHEA & Florina PÎNZARU, 2017. "Tailoring CSR Strategy to Company Size?," Management Dynamics in the Knowledge Economy, College of Management, National University of Political Studies and Public Administration, vol. 5(3), pages 415-437, September.
    5. Callado-Muñoz, Francisco J & Utrero-González, Natalia, 2006. "Does it pay to be socially responsible? Evidence from Spanish retail banking sector," Working Papers of the Department of Economics, University of Girona 16, Department of Economics, University of Girona.

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    More about this item

    Keywords

    corporate governance; managerial entrenchment; social activists; small shareholders; stakeholder society;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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