Project 1
Measuring the Impact of Corporate Engagement

Description

The influence of today’s massive Anglo/American pension funds is being felt in capital markets around the world. The result is not the pension fund "socialism" envisioned by Peter Drucker, but rather a reconfigured capitalism crafted by these enormous financial pools. Pension funds are using their influence to engage and in some cases aggressively challenge the management of corporations in which they invest, in order to ensure long-term shareholder value for future beneficiaries. This corporate engagement reflects a power shift within the firm away from managers and toward shareholders and the institutional investors who represent them.

This study measures the impact of corporate engagement as one strategy for encouraging socially responsible investment and, particularly, its potential impact on added value. Corporate engagement is the direct intervention of institutional investors in corporate policy-making as related to the structure and management of corporate boards and to their accountability to shareholders and (at the limit) stakeholders. This definition assumes that corporate engagement is more about the policies of corporate governance than specific outcomes related to the economic performance of firms themselves.

However, intervention on issues related to corporate policy-making appears to have positive consequences for the long-term economic performance of firms and, ultimately, their market value. Specifically, this project will estimate the impact of corporate engagement in two ways. First, pension fund officials in Canada, the U.S., the U.K., and Australia will be surveyed to determine whether their pension funds have been involved in corporate engagement, what the objectives of such interventions were, in retrospect whether corporate engagement achieved its planned goals, and whether corporate engagement added economic value to their pension fund.

Second, the project will delve deeper into one of the central drivers of corporate engagement—corporate governance. In the post-Enron world, most pension funds using corporate engagement do so through corporate governance campaigns. The research team will take advantage of its relationship with the Deminor ratings group and its quantitative scoring of the governance practices of large European corporations. The database covers the 300 largest European firms traded on European stock markets. The quantitative rankings of corporate governance practices will be used, thereby making an explicit econometric link with stock price volatility and stock price rates of return.

Each of these two approaches is designed to provide a reference point for assessing the impact of corporate engagement as a strategy for encouraging socially responsible investment.

For further information, please contact Tessa Hebb: thebb@attglobal.net

Outputs

Papers

*Clark, Gordon L., Salo, James, & *Hebb, Tessa. Shareholder Activism In the Public Spotlight: Social Investors' Resolutions At US Corporate Annual General Meetings, 2001-2004. Oxford University Centre for the Environment, South Parks Rd., Oxford, OX1 3QY, UK; and *Labor and Work Life Program, Harvard Law School, Harvard University, Cambridge MA 02138, USA.

Clark, Gordon L., Wójcik, Dariusz, & Bauer, Robert. Corporate Governance, Cross-listing, and Managerial Response to Stock Price Discounting: Royal Ahold and Market Arbitrage—Amsterdam and New York, 1973 – 2004. School of Geography and the Environment, Mansfield Road, Oxford, OX1 3TB, United Kingdom; Department of Finance, Maastricht University; and ABP Investments (Heerlen), The Netherlands.

Salo, James. The Emergence of Non-Financial Rating Agencies in Corporate Engagement: A Review and Empirical Analysis of Two Databases. School of Geography and the Environment, University of Oxford, Mansfield Rd., Oxford, OX1 3TB, United Kingdom.

Clark, Gordon L., Hebb, Tessa, & Wójcik, *Dariusz. Institutional Investors and the Language of Finance: the Global Metrics of Market Performance. School of Geography and the Environment, and *Jesus College, University of Oxford, Mansfield Rd, Oxford, OX1 3TB, United Kingdom.

Academic Presentations

Salo, James. (2005, October 14). Shareholder Activism, Social & Environmental Standards: An Analysis of Recent Trends from Annual General Meetings 2001-2004. Pensions at Work Conference, Toronto, Canada.

Clark, Gordon L., Hebb, Tessa, & Wójcik, Dariusz. (2005, May 23). Institutional Investors and the Language of Finance: the Global Metrics of Market Performance. Globalisation and Accounting Standards project, Monash Univesity, Prato, Italy.

Salo, James. (2005, April 8). Corporate Governance & Environmental Performance: An Assessment and Empirical Analysis of the Relationship using Two Proprietary Databases. American Association of Geographers, Annual Conference. Denver, US.

Salo, James, Clark, Gordon L., & Hebb, Tessa. (2004, October 17). The Emergence of Non-Financial Rating Agencies in Corporate Engagement: A Review and Empirical Analysis of Two Databases. Pensions at Work Conference, Winnipeg, Canada.

Bibliography

This is a case of material non-disclosure in which the appellant alleges breach of fiduciary duty and breach of contract against the respondent in the performance of a contract for investment advice and other tax-related financial services. The respondent, Mr. Simms, was a Chartered Accountant and partner in the respondent firm Simms & Waldman. Mr. Simms had developed a special expertise in relation to multi-unit residential buildings (MURBs). In 1980 the appellant Mr. Hodgkinson retained Mr. Simms' services in the areas of tax planning and preparation, and in finding stable, tax-sheltering investments. Mr. Hodgkinson was a "neophyte" in the field of tax planning and tax-related investments. He approached Mr. Simms as an independent professional who would give him the impartial service and advice he was looking for. Mr. Hodgkinson decided to put himself in Mr. Simms' hands with respect to his tax planning and tax sheltering needs. In the course of their relationship, Mr. Simms recommended four MURB projects to Mr. Hodgkinson as meeting his investment criteria. Mr. Hodgkinson duly invested in these projects. What Mr. Hodgkinson did not know, however, was that at the time Mr. Simms was making these recommendations, he was in a financial relationship with the developers of the projects. The more MURBs Mr. Simms sold to Simms & Waldman clients, the larger the fees he reaped from the developers. While Mr. Simms attempted to deny the non-disclosure by arguing at discovery that his relationship with the developers was in fact disclosed to Mr. Hodgkinson, and then stating at trial that his business relationship with the developers did not commence until after Mr. Hodgkinson had invested in the projects, this line of defense was rejected by the trial judge and was not pursued on appeal. Rather, this appeal concerns the proper characterization of the relationship between the parties and determining the nature and extent of the civil liability, if any, flowing from the non-disclosure. The trial judge, Prowse J., found there was an implied retainer between the parties, one of the terms of which was a contractual duty of material disclosure. She went on to find the respondent in breach of this term. In addition, the trial judge held that the relationship between the parties was such that the respondent owed the appellant a fiduciary duty.

The authors report that pension funds have become dominant players in financial markets and in corporate governance. This guide provides a paradigm both for articulating a fund's mission and determining what needs to be done to accomplish it. It includes real-world case studies and explores best practices used by some of the foremost pension funds.

This article reviews the debates associated with divestment in South Africa that happened in the 1970’s and 1980’s. An in-depth examination of the Sullivan Principles, which were expected to improve the working conditions of black South Africans, is undertaken as a means of determining the role that corporate accounting and disclosure has on social movements. It is argued that in the case of South Africa the Sullivan Principles were used to legitimize the continued participation of United States corporations in South Africa. As a result, accounting practices were not neutral technical tools but served as an ideological function by legitimizing the actions of capital. The authors demonstrate how in this case accounting served two contradictory social objectives and that so called “socially responsible” corporations did not facilitate social change in South Africa.

In this article Athanassakos initially wants to confirm that there is a January effect in small and large stocks. Other questions posed are, if there is an effect how does it happen? Are institutional investors responsible for January effects in large stocks and individual investors responsible for small stocks? The results of the study indicate that institutional investors are responsible for the January effect in stocks for a wide variety of reasons. Some of the analysis suggests that since institutional investors factor in other economic indicators in January, it would be wise for other investors to determine, before they invest, if economic indicators would be viewed by institutional investors as positive.

During the 1990s, corporate governance became a hot issue in all of the advanced economies. For decades, major business corporations had reinvested earnings and developed long-term relations with their labour forces as they expanded the scale and scope of their operations. As a result, these corporations had made themselves central to resource allocation and economic performance in the national economies in which they had evolved. Then, beginning in the 1980s and picking up momentum in the 1990s, came the contests for corporate control. Previously silent stockholders, now empowered by institutional investors, demanded that corporations be run to 'maximize shareholder value'. In this highly original book, Mary O'Sullivan provides a critical analysis of the theoretical foundations for this principle of corporate governance and for the alternative perspective that corporations should be run in the interests of 'stakeholders'. She embeds her arguments on the relation between corporate governance and economic performance in historical accounts of the dynamics of corporate growth in the United States and Germany over the course of the twentieth century. O'Sullivan explains the emergenceDSand consequencesDSof 'maximizing shareholder value' as a principle of corporate governance in the United States over the past two decades, and provides unique insights into the contests for corporate control that have unfolded in Germany over the past few years.

This article is an introduction to a special forum of the journal. The authors, in the forum, examine the question of whether overall measure of corporate social performance (CSP) is now available in the halo-adjusted Fortune reputation ratings of Brown and Perry, or whether these data, newly available to researchers, merely confound and perpetuate preexisting problems with using reputational data as indicators of CSP. This helps researchers to understand what they are using, how to use it, and how to carefully interpret their findings and link results back to theory. In the end, Wood indicates that researchers in the scholarly community generate valid, reliable measures of their constructs; to use those measures for what they are, no more and no less; and to keep in mind that the databases and empirical research exist so that researchers can build and confirm better theory.

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