Bossing the Corporation
Who Wants Stakeholder Capitalism? Public and Elite Perceptions of the Role of Business Leaders in Politics
Eitan Hersh & Sarang Shah
Perspectives on Politics, forthcoming
Abstract:
On what policy areas and with what strategies should businesses and their leaders be involved in political activity? Advocates of “stakeholder capitalism” endorse companies and their leaders taking stances on social, environmental, and economic issues that advance the interests of their communities, not just of their shareholders. We juxtapose this view with two alternatives: companies and their leaders should a) stay out of politics or b) advocate only for their narrow business interests. We survey the mass public and business leaders. The public has little appetite for corporate leader engagement. However, business leaders, especially Democratic ones, endorse more active engagement from their firms on most issues, though they favor their firm leaders engaging in behind-the-scenes strategies rather than those that mobilize employees or customers. We find there is an elite appetite for business leaders to move beyond particularistic lobbying and to influence broader economic and social policy.
How Activist Are Institutional Investors? A Closer Look at Proxy Contests and the Contemporary Balance of Advantage
John Coffee
Columbia University Working Paper, June 2025
Abstract:
The era of the hostile takeover has clearly given way to the era of the proxy contest led by an activist hedge fund. Today, a record number of such contests are underway, and they have changed the board composition at many U.S. companies and caused a record number of CEO resignations. But there is a mystery here: when activist funds negotiate for changes with target managements, they often obtain meaningful changes in the board of directors and corporate policies. However, when activists attempt a proxy contest, they have generally been unsuccessful, winning only a small number of seats in a clear minority of the cases. What explains this disparity? The primary explanation has to be the strong skepticism of such proxy contests by the major index funds and asset managers. Although the Big Three do not coordinate their voting policies, they seldom support such challenges (Vanguard estimates that it has supported activist proxy campaigns in only around 20% of the cases in recent years). Given that institutional investors now hold 77% of the stock in the U.S. public corporations and that indexed investors account for roughly 35% of the ownership of U.S. corporations, their reluctance to support activist campaigns is the major barrier to the success of such campaigns. This article examines institutional motivations and concludes that activist funds will likely continue to prefer private negotiations with target managements to public proxy contests. In comparison to the earlier era of hostile takeovers, which were largely halted by judicial acceptance of the poison pill, the resistance of indexed investors represents an analogous, but substantially weaker, limitation on the ability of the proxy contest to change the character and attitudes of public corporations. Proxy contests can win, but largely only if a majority of the members of the Big Three can be individually convinced to support the activist insurgent. What is the impact of the tacit resistance of the index funds? A significant proportion of recent activist challenges have been brought by a strong proponent of shareholder primacy (such as Elliott Investment Management, which is by far the largest of the activist funds and has brought the most such challenges). Much like a weaker version of the poison pill, index fund resistance principally protects and shelters non-shareholder constituencies (e.g., employees, creditors and local communities) from the prospect of adverse actions by activists seeking to maximize shareholder value. This may not be the intent, but it is the effect. Given the decline in the stock owned by retail shareholders and management, the future of Corporate America may increasingly be shaped by the outcomes in these struggles between activist funds and index funds.
Competitive Dynamics in the Political Marketplace: How Donor Firms’ Political Wins Prompt Product-Market Peers to Appoint Politicians to Their Boards
Zhiyan Wu & Wenjiao Cao
Management Science, forthcoming
Abstract:
Using a regression discontinuity design in a sample of U.S. federal special elections, we investigate how donor firms’ political wins impact the adaptive responses of their product-market peers in their political activities, with a particular focus on the appointment of politicians to their boardrooms. By analyzing closely contested special elections, we find that when donor firms had donated to a candidate who narrowly won a special election, their peer firms were 41% more likely to appoint politicians to their boards in the following year than peers of the donor firms that had supported a narrowly defeated candidate. This adaptive response is more pronounced among peer firms facing greater political risks and operating in industries with more intense competition for government sales. Donor firms’ political wins also lead peer firms to increase their product differentiation from those donor firms. We interpret these patterns as evidence of a competitive-dynamics mechanism, where peer firms perceive donor firms’ political wins as a threat that could disadvantage them in the regulatory environment, prompting them to strengthen their boards with political capital to navigate potential regulatory changes and mitigate perceived risks. Our findings enrich scholarly understandings of corporate political activities and director selections.
Does antitrust enforcement against interlocking directorates impair corporate governance?
Dain Donelson, Christian Hutzler & Adrienne Rhodes
Journal of Accounting and Economics, forthcoming
Abstract:
This study examines how recent government antitrust enforcement against potentially illegal interlocking directorates (“competitor interlocks”) reshaped boards. After the first major enforcement announcement, competitor-interlocked directors were more likely than other directors to leave boards and were replaced by individuals with less industry experience. Further, newly appointed directors were less likely to form competitor interlocks. The resulting reduction in relevant board industry experience and competitor interlocks is likely to affect firm outcomes. In their advisory role, competitor-interlocked directors with more industry experience have historically produced higher profit margins, likely due to superior R&D investment advice. In their monitoring role, competitor-interlocked directors with greater industry experience are more likely to hold CEOs accountable for restatements and poor performance. Overall, our results highlight that corporate governance may be weakened if competitor-interlocked directors with substantial industry experience are replaced by directors without such experience.
Analyst Reaction to War-Related Language: Source Domains and the Role of Market Structure and Market Share
João Cotter Salvado & Donal Crilly
Organization Science, forthcoming
Abstract:
Corporate executives often use metaphors, particularly those derived from war imagery, when communicating their strategic intentions. This study examines the influence of metaphorical framing in corporate communication, particularly its effect on analyst reactions to firms’ acquisition announcements. We theorize and analyze the impact of metaphor families that either emphasize or downplay competition while considering the diverse source domains from which these metaphors originate. We propose a theoretical framework that integrates conceptual metaphor theory with the risk-as-feelings perspective, suggesting that certain metaphors can evoke visceral perceptions of danger. Our findings reveal that using metaphors in acquisition announcements generally elicits negative reactions. Notably, metaphors from the competition family, especially war-related ones signifying competitive aggression, evoke stronger adverse reactions. The detrimental impact of war language substantially diminishes in contexts where aggressive competition is expected. We contribute to strategic communication research by highlighting the contingent influence of metaphorical framing on audience reactions, emphasizing the importance of metaphor families, source domains, and contextual factors.
Shocks to CEO Overconfidence and the Deflation of Hubris in Acquisitions
Babajide Wintoki & Yaoyi Xi
University of Kansas Working Paper, May 2025
Abstract:
CEOs become less overconfident when other CEOs to whom they are connected are fired unexpectedly, and this reduces hubris in corporate acquisitions. The reduction in overconfidence following this shock is reflected in our finding that CEOs are less likely to hold vested deep-in-the-money options in the year after which they experience this network turnover shock. In the year following unexpected turnover in their networks, CEOs make fewer acquisitions, and the ones they make are of higher quality. Network turnover shocks thus appear to cause temporal variation in CEO overconfidence that has significant effects on a major corporate policy.
Lazy dividends
Patrick Dennis & James Weston
Journal of Corporate Finance, November 2025
Abstract:
Dividends are clustered in increments of 5, such as 25, 50, and 75. Firms that gravitate towards these ‘prominent’ amounts have lower operating performance and lower annual five-factor alphas of 77 b.p. Consistent with agency frictions that lead to lazy decisions, clustering effects are stronger for entrenched firms, with more market power, and less shareholder activism. Dividend increases also cluster more than cuts, consistent with saliency bias. In a counterfactual exercise, we find no similar patterns in a sample of ADRs. Our results complement a number of recent studies showing the economic importance of simple decision heuristics.
Leaky Director Networks and Innovation Herding
Felipe Cabezon & Gerard Hoberg
Review of Financial Studies, forthcoming
Abstract:
We first document that, despite potential legal issues, overlapping directors are surprisingly prevalent among direct competitors. Using panel data regressions and plausibly exogenous shocks, we find that competing firms in markets with dense overlapping-director networks experience innovation herding, lose product differentiation, and, ultimately, perform poorly. Novel text-based network propagation tests of technologies show that intellectual property leakage plays a role as firms with dense overlapping director networks experience faster propagation of technologies to competitors. Our findings suggest a coordination problem where industry participants cannot stop rivals from earning small gains from leakage despite much larger industry-wide negative externalities.