Soft Shareholder Activism

This paper studies communications between investors and firms as a form of corporate governance. The main premise is that activist investors cannot force their ideas on companies; they must persuade the board or other shareholders that implementing these ideas is beneficial to the firm. I show that the threat of voice (launching a public campaign) facilitates communication, while the option to exit facilitates communication if and only if the proposal is risky relative to the status quo or voice is ineffective as a governance mechanism. The analysis identifies the factors that contribute to successful dialogues between investors and firms