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Economic Review


Volume 91, Number 3
Third Quarter 2006


FEATURES

One Proxy at a Time: Pursuing Social Change through Shareholder Proposals

How Resilient Is the Modern Economy to Energy Price Shocks?

The Federal Home Loan Bank System: The “Other” Housing GSE

Official Dollarization and the Banking System in Ecuador and El Salvador

Staff

 

 
One Proxy at a Time: Pursuing Social Change through Shareholder Proposals
Paula Tkac

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Traditional economic wisdom holds that a corporation’s sole goal should be to maximize shareholder wealth. But some investors believe that firms should also act as agents for social change. Activist investors use their shareholder rights to place socially responsible resolutions on corporate proxy statements to be voted on by all shareholders.

This article examines the controversy behind corporate social responsibility (CSR) and identifies and categorizes activist investors, their objectives, and the firms they target. Using data from the Investor Responsibility Research Center (IRRC) on 2,829 CSR shareholder proposals from 1992 to 2002, the author finds that religious organizations and individuals made the largest number of proposals, but in 2000 proposals by socially responsible mutual funds began to outnumber those by individuals. The three most common proposal topics were international conduct, environmental issues, and antidiscrimination.

Of the 566 different corporations targeted, seventy-three were targeted ten times or more. Larger, economically powerful firms—especially those that value consumer goodwill and have the “name” to aid in social change—were most often targeted.

Because a withdrawn resolution usually signals an action by the corporation—dialogue, agreement to resolution, or some other compromise—the author argues that withdrawn proposals can be used as measure of activism’s success. The IRRC data and her own extensive research on the outcome of withdrawn proposals support this argument.