How shareholders guide the choices of large companies – Economics



What is shareholder engagement?

A socially and environmentally responsible investment strategy. This has been around since the 1960s, but the practice has grown in scope over the last twenty to thirty years and continues to progress.

Who are these stakeholders in shareholder engagement?

Institutional investors, i.e. pension funds, management funds, retirement funds, banks, insurance companies, consultancies, etc. Shareholders who are not only interested in return on investment, but who will try to influence companies to behave more respectfully of the environment, social issues and governance, such as executive compensation.

A resolution filing is a risk to a company. Often accepts shareholder inquiries

What did you notice about your leeway?

When an investor buys a share, it gives him or her the right to vote on matters that run through the life of the company. And in addition to a shareholding percentage, set at 5% in France, you have access to resolution deposits, you can put a subject to a vote. This presupposes, in most cases, a coalition of shareholders to reach 5%. There is one very active right now: Climate Action 100+. This is how shareholders can influence corporate decisions. In reality, this resolution filing is a last resort. Investors often favor dialogue with managers.

Carol-Anne Loher-Delalune is a PhD student at the Université Bretagne Sud and the LEGO lab. At the same time, she teaches management and finance at the IUT de Vannes. She plans to defend her thesis in the fall of 2023. (Photo Carol-Anne Loher)

Does that help move things along?

Yes. A resolution filing is a risk to a company. Often accepts shareholder consultation. She wants to avoid, for example, ending up with someone she wouldn’t have chosen for the board of directors. Or avoid, as we saw with Danone, CEO firing. This is a reputational risk! On very sensitive issues like climate or social policy, if the company says no to shareholders, they will be tempted to mediate. Companies don’t like to have their image damaged. Often, it is the repetition of orders and the multiplicity of shareholders that make things evolve.

Did you notice other progress factors during your interviews?

What draws a lot of attention is that legislation and the law play a huge role in the motivations of companies, for example on the environment and climate, the main topics of the moment. Shareholders, on the other hand, try to take them beyond what the law provides or provides.

If there is awareness, not all companies are open to these environmental and social issues

Have you identified any obstacles to this shareholder engagement?

The main one is the financial brake because putting together a file with an argument to present to the company takes time and money that shareholders don’t always have. And then, if there is awareness, not all companies are open to these environmental and social issues. They may consider that investments of this type entail a loss of value in the short term. And other shareholders first expect a return on investment!

Are we making progress in terms of responsible financing, the subject of your speech in Lorient on May 10th?

Yes, especially with green funds, funds dedicated to CSR policies… Individual pressure on these institutional investors to whom they entrust their money and demand that it be earmarked for virtuous actions also plays a role. These institutional investors, in turn, put pressure on the companies in which they are shareholders to favor them. All of this is linked.

Practice

Carol-Anne Loher-Delalune, May 10, at 7:30 pm, at Sur Mesure in Lorient, on the topic “Towards more responsible finance? », as part of the Pint of science 2022 festival.

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