April 20, 2022 | Documents

Exit vs. voice – this is the general choice that responsible shareholders face when invested in a company that behaves in a way that does not align with their values. The first option is to dissociate themselves and divest. The second is to engage in dialogue to initiate positive change. The latter strategy refers to active ownership and is the focus of a series of analyses published by the Enterprise for Society (E4S) Center this April. But what is the impact of active ownership for the engaging investor and for the target company?

Key takeaways

  1. Investors using active ownership face high administrative and indirect costs, particularly when they engage. However, they are generally rewarded with higher returns, especially when engagement is successful and conducted in collaboration with other investors.
  2. Companies engaged on environmental, social, and governance issues generally improve their practices, especially when they are lagging their peers. They also see improvements in operational and financial performance and changes in stakeholder relations.
  3. Investor collaboration is key. Not only does it spread costs, but it also appears as more effective, further enhancing corporate value and performance.

E4S series on active ownership

In December 2021, E4S studied the impact of divestment as a responsible strategy. The E4S series on active ownership investigates an alternative to divestment: engagement and voting. The first analysis of the E4S series on active ownership, Active ownership: by whom and how?, develops the status quo of this strategy. Active ownership: for what impact? is the second of series and analyses the impact of active ownership and more specifically the benefits and costs for the investor who engages as well as the reactions and behavioral changes of the target company. To be successful in their engagements, however, investors will need to consider several factors. Active ownership: the keys to success develops how the profile of the target company and of the investor, as well as the characteristics of the engagement, can influence the outcome of a shareholder initiative.

Jean-Pierre Danthine, E4S

Florence Hugard, E4S