Disambiguating the Effects of Shareholder Activism on Corporate Director Careers

Abstract

This study examines shareholder activism and its consequences for corporate directors’ career trajectories. We begin by highlighting that the inherent ambiguity surrounding activist interventions implies variation in director careers beyond an overall negative effect. Specifically, we posit and test the notion that the director labor market will differentiate between financially based versus socially based shareholder unrest, with the latter having a stronger negative effect based on (1) its greater information value above and beyond what is already knowable about the firm, and (2) heightened recognition of the need for directors to balance financial performance pressures with responsiveness to evolving environmental, social, and governance concerns. Empirically, we analyze U.S. shareholder activism events between 2014 and 2018, and using Coarsened Exact Matching combined with a Difference-in-Differences approach, we find evidence consistent with our disambiguation perspective on shareholder activism. Our theoretical and empirical analyses also further disambiguate whether director exits reflect market or/and director preferences, and we find evidence for both. We conclude by discussing how our theoretical perspective and empirical findings contribute to research on shareholder activism, director labor markets, and corporate governance.