Reformed and engaged boards – not activist shareholders

This study considers the legitimacy of shareholder activism as a means of exercising influence in the corporate decision-making process and identifies self-reformed boards as a superior solution to the issues that activists attempt to address. We conceptualise the board of directors' role as representing the interests of multiple principals. When any one principal is able to serve its own interests by influencing corporate decision-making through shareholder activism, other principals' interests may be compromised. We argue that a better long-term solution lies not with activist shareholders, but with culturally reformed boards. We suggest a set of self-reform initiatives that would help them to achieve their potential. We develop a conceptual framework for the arguments in favour of boards taking a leadership role in corporate engagement with shareholders and stakeholders. To the extent that boards are unable to implement self-reform, governments may need to develop public policy initiatives for corporate governance reform.