Publications: Council of Institutional Investors

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Council of Institutional Investors

"Does Shareholder Activism Make A Difference?"

As institutional investors have engaged in various forms of corporate governance activity for more than 15 years, the question of whether such activities add value is increasingly being asked. A persuasive argument in favor of taking active ownership positions emerges from collected empirical research on corporate governance and other forms of ownership activity.

Consider any one of the following events: A large public pension fund adds a firm to its list of underperformers. A firm announces the adoption of a poison pill. Management, employees, and directors all increase their ownership stakes in a firm. A majority of outside directors is elected to a corporate board. Institutional investors declare that they refuse to sell a firm's stock. Dissident shareholders announce an upcoming proxy contest.

Which of these activities is the beginning of a decline in a firm's stock price? Which signal a potential increase? Does ownership activity--by a firm's management, employees, or shareholders--add value? The Council of Institutional Investors, an association of public, corporate, and Taft-Hartley pension funds, has released the first summary of its kind to address these questions. "Does Ownership Add Value?" collects and summarizes 100 empirical studies which illustrate how topics ranging from dual-class voting structures to institutional investor monitoring of management affect a firm's investment potential.

The overwhelming majority of the studies present a strong case for the value of ownership activity, except where a firm appears to be insulating itself from market forces. The findings of nearly half of the 100 studies demonstrate a strong association between ownership activity and significant value gains, including stock price appreciation and increased financial performance. Numerous studies indicate that institutional investor monitoring of management, director, management and employee stock ownership, and proxy contests are associated with added value. Having independent directors on a board or eliminating dual classes of stock appears to add value as well.

Conversely, antitakeover amendments and legislation, the issuance of dual classes of equity, the presence of poison pills, any attempts to restrict shareholder rights, and other corporate defenses are associated, in many cases, with value losses.

Set forth below are some highlights from the studies which support the idea that ownership activity adds value. Please note that, as findings of academic empirical studies, these conclusions are conditioned to some degree on the sample size, reliability and accuracy of the performance measure, time period, methodology, and other factors.

Positive Impact of Ownership Activity

Monitoring of Management by Institutional Investors and Outside Directors

Employee, Management, and Director Stock Ownership

Independent/Outside Director Presence

Proxy Contests

Findings of Studies Suggesting Negative Impact of Restrictions on Ownership Activity

Dual Classes of Stock

Poison Pills

Antitakeover Amendments and Legislation

For further information or to obtain a copy of the complete summary for $25, contact the Council of Institutional Investors, 1730 Rhode Island Avenue, N.W., Washington, D.C. 20036 Phone (202-822-0800), Fax (202-822-0801), or the Council at

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