April 27, 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 how to ensure the success of active ownership? When are companies more likely to comply with investors’ ESG demands? And what to do when they do not?

Key takeaways

  1. Mature and financially constrained companies are more often the target of active ownership.
  2. Three categories of factors influence the outcome of shareholder initiatives: company profile, investor profile, and engagement characteristics.
    • Mature, ESG-aware companies are most likely to comply with shareholder demands.
    • Local institutional investors with a history of successful engagement with the company appear to achieve their goals more often.
    • Collaborative engagements that are multi-level, address corporate governance or have a more aggressive approach appear to be more successful.
  3. Although less responsive to engagement, smaller companies and laggards should not be left out. Increased engagement and collaboration with other actors such as bond investors and creditors can help when an initial engagement fails.

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. The second one, Active ownership: for what impact? studies 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.

The English version will be available on May 4.

Jean-Pierre Danthine, E4S

Florence Hugard, E4S