The Decline of Social Entrenchment: Social Network Cohesion and Board Responsiveness to Shareholder Activism

摘要

Shareholder activism through corporate governance proposals is a prominent avenue for investors to voice their concerns in corporate governance matters. However, shareholder proposals have an uneven effect on corporate governance. This paper contributes to research on shareholder activism by joining social movement approaches to activism with network theoretic approaches to corporate governance. The paper examines how firms' position within cohesive sections of the board interlock network, termed "social entrenchment,"predicts (1) the likelihood of being targeted by activist investors and (2) firms' responsiveness to proposal demands. First, a firm's position in the board network serves as a salient network prism, attracting activists' attention. This is especially true for activist investors who lack other backchannel avenues for engagement or seek to use public reputational penalties as part of their activism strategy. Second, the board network traditionally served as an important collective infrastructure among managerial elites helping them preserve autonomy and power. However, the network has become fractured in recent years, raising questions about its continued role in supporting elite cohesion. Results indicate that prior to the mid-2000s socially entrenched firms were less responsive to shareholder proposals. After the mid-2000s, socially entrenched firms were no less responsive. Findings suggest that the board interlock network may have traditionally helped protect corporate elites from external shareholder pressures but the network may have lost its capacity to help corporate leaders preserve their cohesion and autonomy.