The Influence of Shareholder Activism on Global Workforce Practices

How can activists urge companies to improve workforce practices in spite of their low success rate?

Ruth V. Aguilera, Juan Alberto Aragón-Correa, and Maria Ruiz Castillo investigate how firms respond to shareholder proposals focused on workforce issues in their paper "The influence of shareholder activism on global workforce practices".

They explore the types of workforce-related demands that activist shareholders are making and how effective they are depending on whether these proposals are approved, negotiated, or lead to changes in corporate practices.

Their main conclusions include:

• The champions of workforce improvements are not traditional investors: SRI funds, faith-based/religious groups, and public pension funds spearhead most of the workforce-related shareholder proposals.
• The topics covered by these activists include discrimination, labour standards, health and safety, or pay equity, which firms can address through public votes or behind-the-scenes agreements.
• Nearly all such proposals fail to win majority support at annual meetings, reflecting mild backing from most shareholders and the dominance of financial priorities in voting outcomes.
• Firms often prefer to meet activist proponents behind closed doors and reach a compromise rather than face a public vote on sensitive human capital issues, leading to many proposal withdrawals after successful behind-the-scenes engagements.
• Beyond proxy votes, investors increasingly support firms and corporate acquisitions of companies with superior talent management as a way to enhance the overall quality of the workforce in their portfolios.
• Many investors view caring for employees with diversity, safety, and fair pay as aligned with long-term value creation and not just as ethical issues.

This research suggests talent and workforce well-being are becoming material concerns for investors, but meaningful progress will require collaboration between activists and management, rather than adversarial votes.

Responsible investors' investment decisions show human capital is now a strategic asset that can be fostered by turning a usually adversarial engagement process between boards and activists into a collaborative effort.

The study however faces a focus on formal shareholder proposals, mostly in U.S. contexts, but no direct measurement of actual workforce condition improvements, which would be worth assessing more accurately in further research.