Dutch Association of Investors for Sustainable Development

VBDO White paper: bevorderen van aandeelhoudersbetrokkenheid

Download

Publication: VBDO White paper: Advancing shareholder engagement

Shareholder engagement concerns the use of one’s ownership position to influence the decision making of company management. In doing so, shareholders aim to increase transparency and accountability and to raise social and environmental standards of corporate behavior. The practice has been gaining popularity both in Europe and North America, and academic studies have shown that shareholder engagement can influence both ESG performance and financial results of investee companies.

This publication presents further insights into how shareholder engagements influence decision making within portfolio companies. The five cases of engagements studied show that shareholders influence companies 1) directly by raising novel topics and by offering their views on the organizations’ performance, and 2) indirectly by supporting internal change agents. When shareholders ask about an issue on which the company has not developed a formal stance yet, the engagement can spark internal discussions at the director or board level. Questions on existing policies or targets meanwhile shape the boards’ understanding of how the companies’ activities are perceived by external agents. Indirectly, shareholder engagements are used by internal change agents to lobby for organizational change through regular organizational channels. These employees use the engagement as an external legitimation of the relevance of the topic they are promoting. Both direct and indirect modes of influence are more likely to alter organizational behavior if the topic is raised by multiple parties.