Will shareholder pressure reshape company policies?

Executive Summary

The governing structure of major U.S. corporations has undergone profound changes in recent decades, due to pressure from government regulators, outside activists and restive shareholders. Boards once dominated by company insiders have been reshaped, and companies have been forced to confront a host of issues that were once peripheral questions, such as how much executives should be paid and the ethical impact of corporate behavior. But the resulting policies haven’t always satisfied company critics, and some skeptics on the other side argue that the federal government’s efforts to compel better governance have been misguided. With the Trump administration more likely to roll back business regulations than to impose new ones, fresh efforts to change corporate governance will likely come from institutional and activist investors.

Among the key takeaways:

  • The shares of companies with “good governance” have outperformed peers by a few percentage points, according to Credit Suisse research, but the effect wasn’t present in all industries.

  • Executive compensation has increased significantly in the last 20 years, even as some shareholders have called for more restraint and companies have instituted “say-on-pay” stockholder votes.

  • In many corporations, the rules for selecting boards allow directors to be re-elected even if a majority of shareholders do not vote in favor of retaining them.

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Resources for Further Study



Bainbridge, Stephen M., “Corporate Governance After the Financial Crisis,” Oxford University Press, 2012. A skeptic of modern corporate governance principles explains why many current initiatives are “quack governance.”

Clifford, Steven, “The CEO Pay Machine: How it Trashes America and How to Stop it,” Blue Rider Press, 2017. A former CEO and board compensation committee chairman examines how CEO pay has spiraled upward and makes recommendations on how to reverse the trend.

Kim, Kenneth A., and John R. Nofsinger, “Corporate Governance,” Second Edition, Pearson/Prentice Hall, 2007. Two finance professors offer a basic introduction to the principles of corporate governance.

Monks, Robert A.G., and Nell Minow, “Corporate Governance,” Fifth Edition, Wiley, 2011. A pre-eminent textbook on corporate governance, by the founders of the governance research firm GovernanceMetrics International, that covers the subject’s intricacies while remaining readable.

Stout, Lynn, “The Shareholder Value Myth,” Berrett-Koehler Publishers Inc., 2012. A Cornell University law professor argues that the widespread belief that corporations must maximize shareholder value is wrong.


Bebchuk, Lucian A., “Investing in Good Governance,” The New York Times, Sept. 12, 2012, http://tinyurl.com/y7f383z9. A Harvard law professor discusses why the stocks of well-governed companies may no longer outperform those of the bad ones.

Larcker, David, and Brian Tayan, “Chairman and CEO: The Controversy over Board Leadership,” Harvard Law School Forum on Corporate Governance and Financial Regulation, July 26, 2016, http://tinyurl.com/y9aqchps. Two Stanford University Graduate School of Business academics survey data on companies separating – and sometimes recombining – their chairman and CEO jobs.

Lowenstein, Roger, “CEO Pay Is Out of Control. Here’s How to Rein It In,” Fortune magazine, April 19, 2017, http://tinyurl.com/kqnbnm2. A longtime business journalist says companies are inflating pay by using the wrong comparisons and compensation goals that are too easy to hit.

McGregor, Jena, “The ‘zombie directors’ who lurk on corporate boards,” The Washington Post, Nov. 7, 2016, http://tinyurl.com/y8aw57t4. The newspaper’s leadership columnist examines the U.S. system of electing corporate directors and what happens when a director loses.

Reports and Studies

“How Corporate Governance Matters,” Credit Suisse Research Institute, January 2016, http://tinyurl.com/y867ln5p. The Swiss bank’s research affiliate says that in some sectors a focus on corporate governance can reward investors with market outperformance.

“International Comparison of Selected Corporate Governance Guidelines and Codes of Best Practice,” Weil, Gotshal & Manges LLP, June 2014, http://tinyurl.com/yab2eq3t. An international law firm surveys corporate-governance practices across a number of countries and outlines their differing approaches, based in part on their legal traditions.

Bhagat, Sanjai, and Bernard Black, “The Uncertain Relationship Between Board Composition and Firm Performance,” Business Lawyer, May 1999, pp. 921–963, http://tinyurl.com/y7pbtbft. Two academics argue that there is no convincing evidence that greater board independence correlates with greater company profitability or growth.

Faleye, Olubunmi, “Does One Hat Fit All? The Case of Corporate Leadership Structure,” May 10, 2007, http://tinyurl.com/ycdxrmab. A Northeastern University finance professor concludes that it may be counterproductive to require every company to separate its chairman and CEO positions.

Gompers, Paul A., Joy L. Ishii and Andrew Metrick, “Corporate Governance and Equity Prices,” Quarterly Journal of Economics, Vol. 118, No. 1, pp. 107-155, February 2003, http://tinyurl.com/y9zbsmjk. Three academics construct a “governance index” and show that, at that time, companies scoring better outperformed those that scored worse.

The Next Step

Corporate Social Responsibility

Gibson, David, “Doing good and doing well: Faith-based investing converts the skeptics,” Religion News Service, USA Today, May 31, 2017, https://tinyurl.com/yb5fjf2s. Faith-based investors are putting their money into corporations that align with their religious beliefs in hopes they can influence companies on issues such as climate change, human trafficking and racial diversity.

Kolhatkar, Sheelah, “Is Socially Responsible Capitalism Losing?” The New Yorker, June 5, 2017, https://tinyurl.com/yddcw7oq. “Conscious capitalism” stresses that businesses must consider employees, customers and the community, not just shareholders, when making decisions. But many in the investment community still react negatively to companies that try to give more employee benefits or address social issues.

Rushe, Dominic, “Shareholders force ExxonMobil to come clean on cost of climate change,” The Guardian, May 31, 2017, https://tinyurl.com/yasuygqg. Sixty-two percent of ExxonMobil shareholders voted for a measure requiring the oil giant to more clearly report on how climate change will affect its businesses, despite opposition from the company’s management. Last year, the same proposal received 38 percent.

Executive Compensation

Clifford, Steven, “How Companies Actually Decide What to Pay CEOs,” The Atlantic, June 14, 2017, https://tinyurl.com/y8xdced3. The former CEO of King Broadcasting Co., who was a member of multiple compensation committees, details how a model of “external equity,” along with complex bonuses and CEO influence, sent executive pay to new heights.

McGregor, Jena, “The surprising role where women consistently earn more than men,” The Washington Post, May 26, 2017, https://tinyurl.com/ycxzdb45. Among S&P 500 companies in 2016, female CEOs outearned their male counterparts, and some experts believe the reason might be that women are running larger companies.

Melin, Anders, Ellen Proper and Cynthia Koons, “Mylan Shareholders Reject Drugmaker’s Executive Pay Package,” Bloomberg, June 22, 2017, https://tinyurl.com/y74hvrqf. The majority of Mylan investors voted against the drugmaker’s 2016 compensation program because of the reported $97.6 million package for Chairman Robert Coury – but the vote was nonbinding and observers doubt there will be changes to executive compensation.

Investor Pressure

Chaudhuri, Saabira and David Benoit, “Nestle Unmoved by Demands From Activist Investor Third Point,” The Wall Street Journal, June 26, 2017, https://tinyurl.com/y8lrr5bs. Activist investor Daniel Loeb recently purchased $3.5 billion in Nestle shares with his hedge fund Third Point, making him one of the company’s top 10 investors. He is now pressuring Nestle and its new CEO Mark Schneider to increase growth, asking for changes such as selling off some of its more than 2,000 brands.

Cheng, Evelyn, “GE Shares pop 4% after Immelt leaves, giving activist Peltz ‘what he wanted,’” CNBC, June 12, 2017, https://tinyurl.com/yakvhx3e. General Electric Chairman and CEO Jeff Immelt is stepping down Aug. 1, and pressure from Nelson Peltz, CEO of Trian Fund Management, an investment fund that is among the largest investors in GE, may have been a contributing factor in the decision.

Foster, Tom, “The Shelf Life of John Mackey,” Texas Monthly, June 2017, https://tinyurl.com/y8j7d952. A journalist charts the rise of Whole Foods and explains how investor pressure helped lead to the company’s decision to sell to Amazon.

Shareholders Meetings

Caffrey, Michelle, “This Week in Comcast: Shareholders push back over virtual meeting,” Philadelphia Business Journal, June 13, 2017, https://tinyurl.com/ycgkv5ya. Comcast chose to hold an online-only shareholders meeting for the second year in a row, upsetting some shareholders who worried that the virtual meeting silences some participants and inhibits open discussion.

Feloni, Richard, “How the Walmart shareholders meeting went from a few guys in a coffee shop to a 14,000-person, star-studded celebration,” Business Insider, June 2, 2017, https://tinyurl.com/ybrrnp3b. Walmart’s shareholder meetings have grown from small, quiet events in the 1970s to massive, star-studded affairs featuring thousands of employees and days of activities.

Morgenson, Gretchen, “Meet the Shareholders? Not at These Shareholder Meetings,” The New York Times, March 31, 2017, https://tinyurl.com/ydfxlo8e. Last year, 154 companies held online-only shareholders meetings, an increase of 133 from five years earlier, but critics say these companies are using virtual meetings to avoid accountability.


American College of Governance Counsel
c/o Frank M. Placenti, Squire Patton Boggs LLP, 1 E. Washington St., #2700, Phoenix, AZ 85004
Professional, educational and honorary association of lawyers recognized for their achievements in the field of corporate governance.

Council of Institutional Investors
1717 Pennsylvania Ave., N.W., Suite 350, Washington, DC 20006
Coalition of major investors, particularly public pension funds, that has advocated for corporate governance changes since 1985.

Economic Policy Institute
1225 I St., N.W., Suite 600, Washington, DC 20005
Liberal think tank that tracks trends in executive pay and publishes annual studies of the ratio of CEO pay to the average worker.

Glass Lewis
1 Sansome St., Suite 3300, San Francisco, CA 94104
Major proxy advisory service, which advises its investing clients on how to vote on governance matters.

Institutional Shareholder Services
1177 Avenue of Americas, 2nd floor, New York, NY 10036
Oldest and largest proxy advisory service, giving voting advice to clients.

International Corporate Governance Network
Saffron House, 6-10 Kirby St., London, EC1N 8TS, UK
+44 (0) 207 612 7011
Global group of governance professionals and investors who advocate for good governance.

Manhattan Institute for Policy Research
52 Vanderbilt Ave., New York, NY 10017
Free-market think tank that maintains Proxy Monitor, a database of shareholder proposals.

7 World Trade Center, 250 Greenwich St., New York, NY 10007
Stock-index provider with a governance-research division stemming from its 2014 acquisition of GMI Ratings, which was a combination of three major governance-research firms.

DOI: 10.1177/237455680320.n1