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NEW YORK – From Bed, Bath & Beyond to PG&E, activist shareholders are taking on public companies, engaging in more and more high-stakes proxy contests. But new research from Wei Jiang, a Chazen Senior Scholar at Columbia Business School, finds these contests often result in agreements in which activists settle for board seats instead of the structural changes they desire.
This is the first study to provide a systematic, empirical investigation of settlement agreements between activists and target companies. Using a comprehensive, hand-collected dataset, the researchers evaluated common drivers of settlement agreements and find that settlements are more likely when:
- Activists pose a threat of winning board seats in a proxy fight.
- The existing chair of the board is up for re-election.
- The timing of the contest is close to a company’s annual shareholder meeting.
The researchers find that settlement agreements generally focus on board turnover rather than addressing the operational and leadership changes activists are ultimately seeking. The research also shows that such settlements bring about an increase in the number of activist-affiliated and activist-desired directors, and decrease the number of long-tenured directors.
In addition to changes in board composition, settlements are typically followed by increases in CEO turnover, increases in payouts to shareholders, and increases in valuations. And contrary to popular belief, the researchers find no evidence that settlements allow activists to appoint directors who are not supported by other shareholders or that settlements enable activists to purchase enough shares to challenge existing leadership and force a hostile takeover of the target company.
The paper, “Dancing with Activists,” is authored by Wei Jiang, Arthur F. Burns Professor of Free and Competitive Enterprise and a Chazen Senior Scholar at Columbia Business School; Lucian Bebchuk, professor at Harvard Law School; Alon Brav, professor at Duke University’s Fuqua School of Business; and Thomas Keusch, assistant professor at INSEAD.
For more information, please read the related Chazen Institute research brief (PDF).
About Columbia Business School
Columbia Business School is the only world–class, Ivy League business school that delivers a learning experience where academic excellence meets with real–time exposure to the pulse of global business. The School's transformative curriculum bridges academic theory with unparalleled exposure to real world business practice, equipping students with an entrepreneurial mindset that allows them to recognize, capture, and create opportunity in any business environment. The thought leadership of the School's faculty and staff, combined with the accomplishments of its distinguished alumni and position in the center of global business, means that the School's efforts have an immediate, measurable impact on the forces shaping business every day. To learn more about Columbia Business School's position at the very center of business, please visit www.gsb.columbia.edu.
About the Jerome A. Chazen Institute for Global Business
The Jerome A. Chazen Institute for Global Business is the interdisciplinary hub of global business knowledge at Columbia Business School. By injecting a global viewpoint into coursework, supporting research on global business, and sponsoring provocative forums where business leaders and policy-makers engage in vigorous debate, we pool the vast wealth of knowledge that exists within Columbia Business School, distill it for people who operate in the world’s marketplace, and provide a global network for lifelong learning.
About Wei Jiang
Wei Jiang is the Arthur F. Burns Professor of Free and Competitive Enterprise and a Chazen Senior School at Columbia Business School. She currently serves as the Vice Dean for Curriculum and Instruction at Columbia Business School.
Professor Jiang is a leading scholar in corporate governance; in particular, she pioneered research in hedge fund activism. She has received numerous awards for research excellence, including the Smith-Breeden Distinguished Paper Prize from the Journal of Finance and the Michael J. Brennan Best Paper Award from the Review of Financial Studies, as well as the best paper prizes from the Western Finance Association, Chicago Quantitative Alliance, UK Inquire, the Q-Group, and the IRRC Institute. She is currently an associate editor at the Journal of Finance and served on the editorial boards of Review of Financial Studies. Previously, she was a Finance Department Editor at Management Science.
Jiang received her BA and MA in international economics from Fudan University (China), and PhD in economics from the University of Chicago in 2001, after which she joined Columbia Business School. She was an investment banking associate at Prudential Securities (Shanghai) before pursuing her PhD degree.