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Collective action by investors leads to better governance: Rotman study

May 26, 2015

Toron­to, ON – When insti­tu­tion­al investors join forces to push for change, the com­pa­nies they tar­get take notice.

Researchers from the Uni­ver­si­ty of Toron­to’s Rot­man School of Man­age­ment looked at the track record of the Cana­di­an Coali­tion for Good Gov­er­nance, a group of lead­ing Cana­di­an insti­tu­tion­al investors, formed in 2002.

With unprece­dent­ed access into pri­vate cor­re­spon­dence between the coali­tion and tar­get­ed com­pa­nies, the researchers found the ven­ture result­ed in sig­nif­i­cant strides in three key gov­er­nance reform areas between 2005 and 2013.

“It’s a unique look into the inner work­ings of a real col­lec­tive action orga­ni­za­tion which very few, if any­one, have had,” said researcher Craig Doidge. The asso­ciate pro­fes­sor of finance co-wrote the paper with Prof. Alexan­der Dyck, who holds the Pro­fes­sor­ship in Cor­po­rate Gov­er­nance at the Rot­man School, and two for­mer doc­tor­al stu­dents, Hamed Mah­mu­di and Aazam Virani.

When tar­get­ed by the CCG­G’s cam­paign, firms were 17% more like­ly to adopt poli­cies requir­ing a major­i­ty of share­hold­ers to approve uncon­test­ed can­di­dates for direc­tor posi­tions, even con­trol­ling for oth­er pos­si­ble caus­es. They were 22% more like­ly to adopt rec­om­mend­ed improve­ments to exec­u­tive com­pen­sa­tion poli­cies, such as bonus claw backs for under­per­for­mance and pen­sion caps, and 11% more like­ly to accept poli­cies giv­ing share­hold­ers a say on C‑suite remu­ner­a­tion.

The coali­tion exert­ed pres­sure through let­ter cam­paigns and face-to-face meet­ings with indi­vid­ual direc­tors.

There was a rip­ple effect to the coali­tion’s suc­cess too. Besides reform­ing a good chunk of tar­get­ed com­pa­nies, the research found an upswing in gov­er­nance reform at oth­er com­pa­nies with direc­tors who were either simul­ta­ne­ous­ly or pre­vi­ous­ly on boards that had been the sub­ject of coali­tion pres­sure.

“Col­lec­tive­ly the CCGG is big — typ­i­cal­ly they had about 15% to 20% of the vote — and that gets the atten­tion of the [tar­get­ed] fir­m’s board,” said Prof. Doidge. The coali­tion’s impact was also like­ly helped by the fact it had a rep­u­ta­tion for being cred­i­ble, pressed its cam­paign behind-the-scenes, rather than pub­licly, and coali­tion mem­bers often had social rela­tion­ships with direc­tors of tar­get­ed com­pa­nies, the paper said.

The CCG­G’s effec­tive­ness could be repli­cat­ed else­where, sug­gest­ed the authors. How­ev­er, it remains to be seen whether such a coali­tion can con­tin­ue to work in an increas­ing­ly glob­al­ized invest­ment world. Col­lec­tive vot­ing strength may be dilut­ed when local investors move towards for­eign mar­kets, while for­eign investors may not yet have devel­oped the local trust nec­es­sary for group cohe­sion or the social rela­tion­ships that help rein­force its cam­paign mes­sage.

The paper was fund­ed by the Rot­man Inter­na­tion­al Cen­tre for Pen­sion Man­age­ment.

The com­plete study is avail­able at:

For the lat­est think­ing on busi­ness, man­age­ment and eco­nom­ics from the Rot­man School of Man­age­ment, vis­it

The Rot­man Inter­na­tion­al Cen­tre for Pen­sion Man­age­ment is a glob­al, research-based net­work of pen­sion deliv­ery orga­ni­za­tions that stim­u­lates lead­ing-edge think­ing and prac­tice about pen­sion design and management.Rotman ICPM involves 37 of the world’s lead­ing pen­sion orga­ni­za­tions that have joined as its Research Part­ners. It orga­nizes inter­ac­tive Dis­cus­sion Forums for prac­ti­tion­ers and researchers, and funds objec­tive and trans­for­ma­tive research to sup­port effec­tive man­age­ment in pen­sion and invest­ment orga­ni­za­tions. With its part­ner, the Rot­man School of Man­age­ment, ICPM deliv­ers the globe’s lead­ing pen­sion gov­er­nance edu­ca­tion pro­gram – the Board Effec­tive­ness Pro­gram – for board mem­bers of inter­na­tion­al pen­sion and oth­er long-hori­zon invest­ment insti­tu­tions. Fur­ther details on the Cen­tre are avail­able at

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Ken McGuf­fin
Man­ag­er, Media Rela­tions
Rot­man School of Man­age­ment
Uni­ver­si­ty of Toron­to
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