Shareholder activism: performing for publicity or actual policy

change? The influence of social and environmental shareholder activism on CSR

performance.

Abstract:

This paper examines the effect of shareholder activism, regarding social and environmental

issues, on Corporate Social Responsibility (CSR) performance of a firm in the period following

the proposal. In order to do so 599 activist proposals filed at the Securities Exchange

Commission regarding shareholder activism in the period 2006-2015 are examined. The

consequences of these proposals on the CSR performance in the period following the

shareholder proposal are examined. Further parameters are internationalization, stake size

and institutional effects and as control variables firm size and industry are used. No

significant statistical relation is found between these variables, except for the

internationalisation variable, which has a positive relation with CSR performance.

Field key words: Corporate Social Responsibility (CSR), Shareholder activism, Thomson

Reuters Asset4, Proxy Monitor, internationalization, social CSR performance, environmental

CSR performance.

Word count: 11.335

Supervisor: Prof. Dr. C.L.M. Hermes

Study programme:

International Financial Management, University of Groningen

Business and Economics, Uppsala Universitet.

Robert Zantinge

Student number: 1881795

1

Introduction

In recent years there has been much debate about how a firm should behave within society, with

special to which responsibilities it has to abide by. Furthermore, the debate includes the question of

which of the stakeholders the firm actually has a responsibility to, regarding its policies. This debate

is formed by a more classical approach on one side, with proponents such as Friedmann (1970), and

more recent researchers on the other hand, who are pushing for more corporate social responsibility

(CSR) within a firm. These recent researchers argue that firms have a responsibility to society, to

behave in such a way that their activities to generate wealth are not at the cost of future

generations.

This responsibility matters, as the costs associated with CSR can be substantial. In the classical view

the costs of these policies are paid by shareholders, as the owners of the company, so it is not the

responsibility of a manager to spend money on CSR. This responsibility lies with individuals, and not

the management of a firm which would be spending resources that are not theirs to spend, as

discussed by Friedman (1970). Current theories write about the cost of environmental and social

policies made by firms to society. For example, the costs of the oil leak of BP’s oil platform

Deepwater Horizon were not only paid by shareholders, but also by people such as fishermen and

people living at the coast near the oil spill (Cherry & Sneirson,2011). Because more researchers are

looking at these issues from a broader perspective, and include other stakeholders, the focus of the

debate has changed. From the classical view, that regards CSR as a waste of resources, towards

shareholder activists trying to influence firm behaviour and improve their policies regarding CSR

(Gillan and Starks, 2007).

Shareholder activism itself has been present for a long time in the United States. According to Gillan

and Starks (2007) shareholder activism started in the thirties, and has been present ever since in

varying degrees. Lately there has been an increase in activism aimed at corporations, which coincides

with a greater societal awareness. This increase in activism also presents new problems, such as a

type of agency problems. Classic agency problems originate from a divergence of interests between

management and shareholders (Jensen & Meckling, 1976). Shareholder activism is often initiated by

shareholders only holding a small amount shares (Copland and O’Keefe, 2015). Larger shareholders

tend to be more focussed on profit and operational results due to their function, an example of this

being investment funds. (Cziraki, Renneboog & Szilagyi, 2010). This creates agency problems due to a

divergence in interest between often larger shareholders, who focus on profit, and activist

shareholders who want to increase sustainability within a firm (Copland and O’Keefe, 2015).

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A prime example of this occurs within the well-known oil corporation Shell, where an activist

organization called ‘Follow This’ tries to completely change the strategy of Shell. ‘Follow This’

proposal states that Shell should focus on renewable energy and should only produce renewable

energy by 2030 (the Guardian, 2015). This would be very costly, as the current strategy is still largely

based on fossil fuels, with a slow growth towards more sustainable energy. Furthermore, current

assets of Shell, such as oil rigs, are expensive to just discard in favour of more sustainable assets

(Financieel Dagblad, 2016). ‘Follow This’ does not operate on its own, they try to get large

institutional investors on board with their agenda. By gaining support of large investors ‘Follow This’

wants to send a clear signal towards Shell’s top management regarding the need for change. For the

last filing they got support from Actiam, a large investment fund at the annual shareholders meeting

(Financieel Dagblad, 2016). Recently Shell has announced that it will change its strategy towards

more wind energy, and has already purchased a concession to operate a large wind energy park just

off the coast of the Netherlands (Financieel Dagblad, 2016). Whether this was the result of an activist

shareholder pushing for change, the institutions backing the proposal or changing public opinion is

not known, but it is a clear change from previous strategies. From a societal perspective it is very

interesting to know which factors influence a firms strategy. If even a firm such as Shell, which is

always in the spotlights regarding environmental issues, can change its strategy, which firm would be

able to resist such outside pressure? For this reason it is important to do more research regarding

this topic, as the benefits for the environment and society can be huge.

Also from a more scientific point of view there is a call for more research regarding CSR and the

influence of outside stakeholders such as activist shareholders. Neubaum and Zahra(2006) argue that

more research should be done on the shareholder activism construct in general, but also on the

effect of different types of investors and the consequences of their time horizon. Time horizon in this

case refers to the long term or short term orientation that an investor has towards their investment

Neubaum and Zahra (2006). According to Neubaum and Zahra (2006) more research should also be

done regarding long term investors, as they might have a larger interest in the environmental and

social performance of a firm. Neubaum also writes about effects of the size and industry of firms, as

they lead to a larger visibility, which should be taken into consideration in future papers. Sjöström

(2008) argues the need for further research regarding the reason why certain topics get more

attention within CSR, and what the consequences of shareholder activism are. She argues that there

is a dearth of studies using longitudal data considering effects of shareholder activism. Finally, also

Gillan and Starks (2007) call for more research regarding the long-term effects of shareholder

activism.

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For this reason I formulate the following research question for my paper, which could answer some

of these gaps in literature.

Does a CSR proposal regarding environmental or social oriented issues have a long-term effect on the

environmental or social performance of a firm?

In the following section I describe literature regarding this topic and I present hypotheses in order to

answer my research question. After this I present my method on where to get my data and how to

use it to answer my research question and hypotheses. The following section describes the results

and the consequences for my hypotheses. The concluding section answers the research question and

presents limitations and further research possibilities.

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Theory

Many different definitions of the level of corporate social responsibility are found in literature, which

makes it difficult to find one working definition. Furthermore, across different countries there are

definition differences according to Matten and Moon (2008). Matten and Moon (2008) claim that

firms from the United States use more explicit CSR policies compared to European firms. In this case,

explicit means adopting corporate codes regarding corporate social responsibility and language used

by a firm on their website. In this paper international effects are studied, so the definition of

corporate social responsibility needs to be broad enough to capture the concept in an international

setting. The following definition is used by both Carroll (1999) and Devinney (2009:

CSR is the total of the company’s discretionary multidimensional activities which include

social, political, environmental, economic and ethical actions.

This definition captures CSR, but is broad enough to be applied in an international setting according

to Carroll (1999). Moreover, views about what level of activism is appropriate for a firm are heavily

debated. Different theories disagree on the level of responsibility that a firm has towards society,

and whether this responsibility to society exists at all. Following the perspective of Friedman (1970)

firms should not engage in CSR, as this is a responsibility of the government and individuals who

should decide for themselves if they want to spend their resources on CSR activities. Management

should not spend the shareholders’ money on projects that are not increasing profits, as

management is hired by shareholders and their sole role is providing shareholders with returns for

their investment. Alternatively, there are many theories arguing the opposite, which say CSR has a

positive relation to firm value (Porter & Kramer, 2002; Saiia et al.,2003; Brammer & Millington, 2005;

Orlitzky et al., 2003; and Roman et al., 1999). Zheng, Luo and Maksimov (2015) take this a step

further and claim that CSR is necessary for a firm, as their legitimacy depends on it. Legitimacy is

necessary in order to sustain a good relationship with stakeholders outside the firm according to

Zheng, Luo and Maksimov (2015).

CSR can be used to avoid regulatory penalties, for example on their environmental policy. Especially

in industries under strict government supervision this can be an important motivation to engage in

CSR (Freedman and Stagliano, 1991; Shane and Spicer 1983). By participating in CSR these companies

send out a signal to the government that they are a willing partner, which can have beneficial effects.

For example, Brown, Helland and Smith (2009) found that petroleum corporations spend a significant

amount of their budget on environmental CSR policies, while pharmaceutical firms give more to

health organizations such as hospitals. These results suggest that firms choose their CSR policy

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carefully and change them towards their stakeholders preferences, as there are potential benefits to

be gained. According to Brown, Helland and Smith (2009) pharmaceutical firms can use donations to

healthcare to create a connection with doctors and hospitals that later buy their products. And the

petroleum corporation can use their environmental donation to legitimize their operation towards

legislators and the general public. Industries with little international exposure (utilities, retailers,

health etc.) give less to international CSR projects but target more local projects (Brown, Helland and

Smith, 2009).

According to Mahoney, Thorne, Cecil and LaGore (2013) some firms use a CSR report for the wrong

reasons. According to this paper the motivation for publishing a CSR report is often greenwashing or

signalling. They define greenwashing as firms pretending to be a good corporate citizen with a strong

CSR policy while actually not performing very well in this area. These type of firms publish CSR

reports to try to convince investors of their policies, while these reports exaggerate their

performance. Signalling is described as firms using a CSR report to inform investors of their CSR.

There is a difference between firms engaging in greenwashing and firms using their CSR report as a

signalling mechanism. Firms using greenwashing are pretending to be good corporate citizens, while

firms that use the signalling mechanism use the CSR report to inform investors of strong

commitment to actually existing CSR policies.

Signalling theory is mostly directed towards shareholders with a strong social and environmental

agenda. By giving of this signal the firm tries to attract extra investors in order to raise more capital.

Contrastingly, social oriented investors also try to influence the firms in which they invest. This is

done by shareholder activism or the filing of proposals at the shareholder meeting in order to try to

influence the firm. Gillan and Starks (2007) defined shareholder activists as: “investors who,

dissatisfied with some aspect of a company’s management or operations, try to bring about change

in within the company without a change in control.”

Shareholder activism can target different areas within a firm. As can be seen in the case of CalPERS

there is a focus on corporate governance, but also on operating performance and shareholder wealth

(Smith, 1996). An important reason for activist shareholders to target firms was underperformance

compared to the S&P 500. Alternatively, there are also investors who focus on the environmental

and social performance of their investments. According to O'Rourke (2003) environmental and social

issues become more and more important for institutional investors, but also investment funds such

as churches and public pension funds (O'Rourke, 2003). Social and environmental topics are

traditionally raised by church organisations in the US, although more recently individuals have

started to become more active again (Sjöström, 2008; Copland & O'Keefe, 2016). These individuals

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are also known as “gadflies” and have been around since the forties of the previous century,

although their level of activity fluctuated through the years according to Gillan and Starks (1998).

These individuals, religious organizations, and institutions seem to target firms that underperform

with regards to corporate social responsibility. This is confirmed by Rehbein, Waddock and Graves

(2004) who argue that activists target firms that perform poorly on issues related to employee and

community policies.

Shareholders that target firms for social policies can be divided in two different groups according to

Rowley and Moldoveanu (2003). The first social shareholder group operates from an interest or

principle based perspective and the second group argues from an identity perspective. This division is

important, as most proposals regarding social policies do not get the necessary amount of votes to

pass through the shareholder meeting. So why would social shareholders even bother with these

proposals if their chance of success is so low? Rehbein, Waddock and Graves (2004) argue that the

reason for this seemingly pointless behaviour is because of these two types of investors. Investors

who follow the identity principle file activist proposals, because they are necessary to foster the

common identity within their investor group. Alternatively, investor groups whose principles are

interest based will file proposals when they feel their key issues are not receiving necessary attention

and want to gather support for their social agenda. By filing proposals the issue receives attention

and becomes more likely to be resolved (Rehbein, Waddock and Graves, 2004). Even when these

proposals do not get the necessary amount of votes the proposals strengthen the identity for the

first investor group and make sure that certain issues get on the agenda for the second group.

Furthermore, by putting these topics on the agenda the investor has identified the problem, which

can put out a signal to other stakeholders, which puts pressure on management. When the support

for these proposals is higher as they receive more votes in favour of a proposal, the more potent the

signal send out to management of the target firm becomes. This pressure can then lead to

negotiations between management and the involved shareholders (Rehbein, Waddock and Graves,

2004). So even when proposals regarding environmental and social policies do not get the necessary

votes in the shareholders meeting there are still valid reasons for shareholders to file these

proposals. As these proposals are used as signals towards management, that a significant portion of

shareholders is dissatisfied or wants different policies regarding certain environmental issues, this

will influence the CSR performance of the target firm in the years following the activist proposal

(Rehbein, Waddock and Graves, 2004). As the amount of support for a proposal grows the signalling

effect becomes stronger, which will make the company more likely to improve their CSR policy in the

following year. This leads to the following hypothesis:

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H1: there is a positive relation between shareholder support for an environmental or social

shareholder proposal and the change in CSR performance of the target firm in the following period.

Furthermore, there are specific types of investors who are more likely to target firms that are lagging

in areas regarding environmental and social affairs. This is confirmed by Agrawal (2012) who reviews

the activist behaviour of AFL-CIO in the United States. AFL-CIO represents several labour unions and

has large investments in firms in the United States. According to Agrawal (2012) institutions engage

more in activism when firms score particularly low on corporate governance. When an investment

scores low on social issues that are important to workers, a labour union will chose to pursue its

social agenda in spite of potential repercussions to operational performance according to Agrawal

(2012).

Research done by Neubaum and Zahra (2006) identifies important factors for the success of an

activist campaign. The time horizon of the shareholder combined with the weight of their voice is

important for success. In determining the weight of voice they use the stakeholder salience theory

which claims that shareholders with a higher volume of shares have logically more power over

decisions made by senior management. Time horizon is related to the type of investor according to

Neubaum and Zahra (2006). Some investors like investment banks, and mutual funds are generally

short term oriented and need to see immediate results for their investments. This implies that they

will be less inclined to file activist proposals (Neubaum and Zahra, 2006). Short term investors prefer

to “vote with their feet” which is selling their shares instead of engaging in a costly activist campaign

(Gantchev, 2013). Long term investors such as a pension fund tend to hold onto an investment

longer, in comparison to the previous mentioned types of investors. A possible explanation for this is

the salary of pension fund managers in comparison to employees from, for example, investment

banks is less tied to short term portfolio performance. This also leads to less focus on short term

performance. (Johnson and Greening, 1999). Since investments in CSR often have a long term

orientation by their nature, the type of investor could help predict whether shareholder activism will

occur (Johnson and Greening, 1999; Mahapatra, 1984). Institutional shareholders often have a long-

term orientation and a relatively large stake in a firm, further increasing their incentive to engage in

CSR investments and activist behaviour (Appel et al., 2016; Romano, 1993; Carleton, Nelson and

Weisbach, 1998). Because of this longer time horizon of CSR investments it is inevitable that short

term oriented investors, such as investment banks, are less interested in these type of investments.

The effect of institutional ownership is confirmed by Smith (1996) who found that in firms with larger

institutional ownership there was more shareholder activism. Smith (1996) described in his research

the US based CALpers pension fund, which is regarded as one of the largest investors and is famous

for engaging in CSR. CALpers engaged in several activist campaigns, and Smith deciphered which

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factors influenced the decision to start an activist campaign. Institutional ownership was one of the

common factors for a lot of the activist proposals initiated by CALpers. In addition, Del Guercio and

Hawkins (1999) confirm the importance of institutional ownership for shareholder activism. Chen,

Harford and Li (2007) confirm these findings, and they argue that monitoring within a target firm has

to be done by investors with a long term orientation. Chen, Harford and Li (2007) further argue that

there are economies of scale involved with gathering information and trying to influence the board.

These scale economies also benefit shareholder activism, as investors need information to monitor

the firm (Gantchev, 2013). Chen, Harford and Li (2007) claim institutional investors tend to be better

equipped to do the kind of research necessary and have the necessary connections to senior

management within the firm to successfully influence the policy of the firm. As institutional investors

are better equipped to monitor a firm, an activist proposal presented by an institution should have

more credibility and have a larger chance of success compared to proposals filed by individuals. For

this reason, a proposal presented by an institution should have a larger effect on the CSR

performance of a firm in the period following the proposal. From these arguments the following

hypothesis is formed:

H2: There is a positive relation between institutional investors presenting a proposal and the change

in CSR performance of the target firm in the following year.

The CSR performance of a firm is also influenced by the level of internalisation of a firm. As a firm

becomes more international oriented the CSR performance will become more important. This was

confirmed by Attig, Boubakri and Guedhami (2016). They argue that:

“Firms deal with increased pressures as a result from a larger and culturally, politically,

institutionally, and economically more diverse stakeholder environment by integrating them

into their CSR activities.”

This increased pressure occurs in the case of international diversification by the firm and is explained

by the following arguments. First, as reported by Kacperczyk (2009), it becomes more difficult to

replace management when a firm grows larger and more complex and therefore becomes more

demanding on managers. As it is more difficult to replace management when alternatives are scarce,

shareholders are more willing to negotiate with management and replacing them remains a last

resort (Kacperczyk, 2009). Secondly, after expanding internationally firms can signal their

commitment to a market by engaging in CSR. As mentioned before, the time horizon of CSR

investments is often long (Neubaum and Zahra, 2006) and by engaging in local CSR activities the firm

signals a long term commitment to that market. Furthermore, by signalling that the company is

socially responsible the firms trustworthiness increases (Zahra, Ireland and Hitt, 2000). The company

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can also lower the psychic distance between the home country and the foreign country by engaging

in CSR (Johanson and Vahlne, 1977). The psychic distance is defined by Johanson and Vahlne (1977)

as the “sum of factors preventing the flow of information from and to the market”. This presents an

incentive for firms to engage in CSR to reduce problems associated with the psychic distance

paradox.

Larger firms are more visible, which results in more media coverage, so any potential CSR problem is

more likely to become public as the firm becomes more international and thus larger (Hong and

Kacperczyk, 2009; El Ghoul, Guedhami, Kwok and Mishra, 2011). Because of this increased visibility

shareholders will want to monitor more closely. This is related to the previously mentioned

argument about the need for shareholder activists to create a common identity or act on common

principles. Activist shareholders need to clearly signal their commitment to their principles in order

to create or maintain their common identity. As the visibility of a firm goes up, so does the need for

an activist shareholder to present their views(Rehbein, Waddock and Graves, 2004). This implies that

the level of shareholder activism is influenced by the level of internationalisation of a firm, as firms

become more visible and deal with more institutional and pressure from more stakeholders. This

influence of internationalisation is expected to moderate the relation between support for

shareholder proposals and the CSR performance of a firm due to the previously mentioned

arguments.

H3: Internationalisation positively moderates the relation between support for an activist shareholder

proposal and CSR performance in the following period.

Shareholders with a larger stake in the firm tend to be better at monitoring the firm, which would

imply that they are more likely to engage in activism if they disagree with firm policies according to

Zeckhauser and Pound (1990). They argue that large shareholders tend to have more resources

available to engage in shareholder activism, but also a larger incentive as their stake is larger so are

their potential gains and losses. Furthermore, a larger voting block logically has a larger chance at

success due to the larger absolute volume of votes. Also, due to the larger stake size a large investor

will suffer less from free riding (McCahery, Sautner and Starks, 2016). Free riding is defined by

McCahery, Sautner and Starks (2016) as “a disincentive for shareholder activism as benefits are

spread equally across all shareholders but the costs are borne by the activist”. McCahery, Sautner and

Starks (2016) ague that firm size decreases the free rider problem as the activist has a larger share in

potential gains and there are less other investors profiting from their investment. Furthermore,

according to Gillan and Starks (2000) individual investors receive less votes for their proposals

compared to larger institutional investors. Adding to that Gillan and Starks (2003) show that larger

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investors are essential, because in a group of just small investors no investor feels the responsibility

to monitor or lacks the resources or financial motivation, as their stake is too small to create a

convincing signal to other investors. Furthermore, proposals made by an investor owning a larger

stake in the firm signals a commitment to the firm, by the activist shareholder, that they are invested

in the firm and are dependent on good results themselves. This can boost confidence of other

investors and encourage them to vote in favour of the activist proposal. This signalling effect is

essential for activist shareholders, as their public image is essential for their group identity and for

getting their issues on the corporate agenda, according to Rehbein, Waddock & Graves (2004). For

that reason, stake size should moderate the relation between shareholder support for activist

proposals and CSR performance of a firm.

H4: Stake size positively moderates the relation between support for an activist shareholder proposal

and CSR performance in the following period.

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Methodology

Sample

In order to measure the effect of social and environmental activist shareholder proposals on the CSR

score I use a sample of proposals from the Proxy Monitor database. The Proxy Monitor database is

sponsored by the Manhattan Institute and covers the 250 largest US based firms. The ranking of

included firms is determined by using total revenue. The Manhattan Institute obtains their data

directly from the Securities and Exchange Commission (SEC) and link directly to the information, also

present in form 14A. Form 14A, also known as the proxy statement, lists proposals filed by

shareholders to be presented at the annual shareholders meeting. In order to be able to file a

proposal a shareholder needs to hold at least shares with a total value of 2.000 USD or they need to

hold 1 percent of total outstanding firm shares with voting rights. Filing 14A became obligated

through the Securities Exchange Act of 1934 and its goal is to ensure shareholders can make an

informed choice regarding decisions made at the shareholders meeting. For that reason, the

proponent of the proposal is mentioned together with his motivation for the proposal. Also,

recorded in the filing is the management response to the proposal and a voting advice by the

management.

The available data covers 2006 until 2015 and in total there are 5.570 observations of a shareholder

proposal, regarding either corporate governance, executive compensation and social policy. The

proposals are categorized across these three categories within the Proxy Monitor database, based on

the topic of the proposal and the motivation, as presented by the proponent of the proposal. After

excluding corporate governance and executive compensation proposals, 1.337 observations are left.

Within the database a distinction is made between different types of investors such as institutions,

individuals and coordinated groups such as religious organizations. These types are based on the

identity of the filer, as indicated in filing 14A at the SEC database. Also recorded are the votes in

favour of a proposal, and whether a proposal was presented at the shareholders meeting or not.

Proposals that are withdrawn right before the meeting indicate an agreement or negotiations

between management and the shareholder activist. When a proposal gets withdrawn this is stated in

filing 14A. After excluding all the proposals for which data concerning the shareholders’ identity or

stakesize is absent there are 599 proposals left for the time period 2006 – 2015.

Dependent variable

The dependent variable is the performance of a firm regarding Corporate Social Responsibility. For

that reason the Asset4 database is used, as provided by Thomson Reuters. The Asset4 database

provides a score based on Environmental, Social and Governance performance. The data can be

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matched to almost every observation in the Proxy Monitor database, although a few observations

are missing, as they no longer exist due to for example bankruptcy, takeovers or mergers. Because

the Asset4 holds different categories and provides data on these separate categories the proposals

can be matched directly to the performance of the firm in that category. For example, for a proposal

regarding environmental issues it is possible to check for improvements in the environmental Asset4

score in the following years.

According to Semanova and Hassel (2015) the Asset4 database produces comparable results to other

well-known databases, such as the KLD database. Asset4 rates firms on an annual basis and provides

them with a ranking for different Key Performance Indicators or (KPI). These KPI’s are all based on

the three pillars of the Asset4 which are Environmental, Social and Governance. The final score that

Asset4 assigns to a firm shows how well the firm deals with environmental issues, such as energy and

pollution, but also on social issues, such as for example human rights (Semanova and Hassel, 2015).

As this paper discusses the effect of different measures on the CSR performance we need to consider

the effect that on the year after the year in which a shareholder proposal occurred. For that reason

we take into account the change between the year of the proposal and the subsequent year. So the

change in CSR is measured as: CSRt – CSR in year t+1. However, according to Dimson, Karakas and Li

(2013) it takes around 1.5 years before improvements in CSR policies are implemented, as it takes

time to get from the stage of activism to actually implementing the changes within the firm. For this

reason I include two periods in my analysis. I first lag the CSR performance of a firm only one year

after the filing of the proposal and I also check for two years after this in order to see if the CSR

performance actually improved. I use both the categorized Asset4 scores, so the social score for a

social proposal. I also assess improvements in the total CSR score in the following year and two years.

The reason for this is to ensure that the firm did not just shift the sustainability budget from, for

example, the social to the environmental area. The total CSR score is also provided by theAsset4

database. When a firm increases its score in the separate category, but the total CSR score stays

similar, this indicates that there was merely a shift in budget and not an improvement in the CSR

performance as a whole.

Independent variables

The amount of shareholder support for an environmental or social shareholder proposal is measured

using the percentage of votes in favour of the proposal. This percentage is available in the Proxy

Monitor database as a percentage of total votes. These percentages stay relatively low due to

environmental and social proposals gaining less support than corporate governance proposal

(Dimson, Karakas and Li, 2013).

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Furthermore, some proposals are not brought to vote at the shareholder meeting after being

deposited at the SEC. This indicates success, as it is likely the shareholder chooses not to present the

proposal due to negotiations with management (Appel, 2016). This is further elaborated in the

descriptive statistics section.

The Proxy Monitor database also provides information regarding the type of proponent of an activist

proposal. A proponent of a proposal is categorized as either an individual, religious organization or

an institution. This information is retrieved from the SEC database as proponents are required to

present their name in filing 14a. The influence of institutional investors is measured using a dummy

variable. Institutions get labelled with a one and non-institutions such as individuals and religious

organization a zero.

For the international variable I use the commonly utilized measurement of foreign sales divided by

total sales. By comparing foreign sales to total sales the level of internationalization is determined for

the firm which, as mentioned in the Theory section, influences the firms’ CSR performance. This

method is also used by Attig, Boubakri, El Ghoul & Guedhami (2016), Sullivan (1994) and Li, Qiu &

Wan (2011). As described in the theory section, internationalization moderates the relation between

the level of support for a shareholder proposal and the CSR performance of a firm.

The final independent variable is stake size, which is measured by dividing the amount of shares

owned by the shareholder filing the proposal and the total amount of outstanding shares. This

information is available in filing 14A at the SEC although some firms only report that the shareholders

own the necessary minimum of shares to file a proposal which is 2.000 USD. These proposals are

excluded from the sample as mentioned previously.

Controls

As mentioned, firms in certain industries are more visible to the public and engage more in CSR

behaviour, in order to legitimize their behaviour Bowen (2000). Adams and Hill (1998) found that

firms in certain industries tended to publish more environmental and employee information

regarding CSR policies. For example, Jenkins and Yakovleva (2006) discovered that the mining

industry is an industry in which firms disclose more information in their CSR reports. Other such

industries identified by literature are the oil industry and chemical industry (Clarke and Gibson-

Sweet, 1999; Line, Hawley and Krut, 2002). Ness and Mirza (1991) claim that this industry

phenomenon differs per industry and in the case of the oil industry comes from the direct and clear

relation between oil spills and their environmental consequences. Furthermore, also Holder-Webb,

Cohen, Nath and Wood (2009) report differences in the frequency and level of detail in CSR

disclosures. In conclusion, there seems to be a positive relation between industries that are more

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visible to the public and CSR reporting by corporations. The theoretical foundation for this relation

can be found in the legitimacy theory and the signalling theory. The legitimacy theory states that a

firm will try to follow society’s norms and values, because this is necessary for its continued

existence. Without conforming to society the firm will lose its legitimacy and eventually cease to

exist, according to Dowling and Pfeffer (1975). Signalling theory in the case of CSR is defined as firms

trying to signal towards shareholders and society their commitment to CSR by Mahoney, Thorne,

Cecil and LaGore (2013). As mentioned previously Mahoney, Thorne, Cecil and LaGore (2013) also

claim a second reason for firms in sensitive industries which is greenwashing. Greenwashing implies

that firms in sensitive industries try to signal to the market that their CSR performance is very

satisfactory, while in fact their CSR performance is not better than that of their competitors. Because

of greenwashing, a negative relation between industry and CSR performance is expected. And

industry is used as a control variable in this paper (Alves, 2009; Delmas and Burbano, 2011;

Mahoney, Thorne, Cecil and LaGore, 2013).

The industry variable will be defined using the methodology provided by Reverte (2009). In that

paper a standard is developed, describing which industries are more sensitive to CSR and which

standards are less sensitive. Sensitive towards CSR means that the industry in which the firm

operates is closely watched by media and society and susceptible to scandals. An example of this

would be the oil industry. The proxy monitor database already divides the companies listed in the

database in relatively detailed subgroups based on their core activities. Reverte (2009) names the

following industries as “sensitive”: mining, oil and gas, chemicals, forestry and paper, steel and other

metals, electrictity, gas distribution and water. The Industry Classification Benchmark (ICB) is used to

assign firms to their industries. In the appendix in Table A2 I have provided the ICB classification.

From these possible industries the following are determined to be sensitive by Reverte (2009): basic

materials, industrials, oil and gas and utilities. Each industry is assigned a different number, but one

industry is excluded in order to avoid the dummy variable trap as this would induce multicollinearity

in the model.

The final control variable used in this study is firm size. Larger firms have more resources at their

disposal and are at the same time more visible, thereby increasing their need to engage in CSR

(Brammer & Millington, 2006; Burke, Logsdon, Mitchell, Reiner & Vogel, 1986). Firm size is measured

using the methodology presented by Smith (1996) who proposed using the natural logarithm of the

market value of equity. This data is annually available for each of the proposals in the Datastream

database by Thomson Reuters.

Regression model

15

Because the change in CSR will be determined in the first year after the proposal and two years after

the proposal the dependent variable is defined as ChangeCSR in year t+n and n will be equal to either

one or two.

𝐶ℎ𝑎𝑛𝑔𝑒𝐶𝑆𝑅𝑡+𝑛 = 𝛽1 %𝑉𝑃𝑟𝑜𝑝𝑡 + 𝛽2𝑇𝑦𝑝𝑒𝐼𝑛𝑣𝑒𝑠𝑡𝑜𝑟𝑡 + 𝛽3𝐼𝑛𝑡𝑒𝑟𝑛𝑎𝑡𝑖𝑜𝑛𝑎𝑙𝑖𝑠𝑎𝑡𝑖𝑜𝑛𝑡

+ 𝛽4%𝑉𝑃𝑟𝑜𝑝 ∗ 𝐼𝑛𝑡𝑒𝑟𝑛𝑎𝑡𝑖𝑜𝑛𝑎𝑙𝑖𝑠𝑎𝑡𝑖𝑜𝑛𝑡 + 𝛽5𝑆𝑡𝑎𝑘𝑒𝑆𝑖𝑧𝑒𝑡

+ 𝛽6%𝑉𝑃𝑟𝑜𝑝 ∗ 𝑆𝑡𝑎𝑘𝑒𝑠𝑖𝑧𝑒𝑡 + 𝛽7𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦𝑡 + 𝛽8𝐹𝑖𝑟𝑚𝑆𝑖𝑧𝑒𝑡

ChangeCSR stands for the change in CSR from year t to year t+1. %VProp is the amount of votes in

favour of a proposal as a percentage. TypeInvestor is a dummy variable, which equals either one, if

an institutional investor is the proponent, or zero for a non-institutional investor being the

proponent of the activist proposal. Internationalisation stands for the level of internationalisation

within a target firm. Then an interaction term for the effect of internationalisation on the relation

between the amount of votes in favour of an activist proposal and CSR performance is included.

StakeSize is the percentage of total outstanding shares owned by the investors filing the proposal.

Here another interaction term is included to the expected moderating effect of StakeSize. Industry is

a dummy variable and for each industry a number is assigned. FirmSize is the size of the firm which

receives the proposal measured by the natural logarithm of the market value of equity.

16

Descriptive statistics

In this section the descriptive statics for the main variables are presented and a number of extra

analysis is done for the industry effect. Furthermore, the correlation matrix is presented to check for

correlation between variables.

In Table 1 the distribution of proposals per year is presented for the total amount of proposals

subdivided into social and environmental proposals and the type of investor presenting the proposal

is given.

Table 1: Distribution of proposals

Amount of activist shareholder proposals regarding environmental or social issues

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total

Total Proposals 75 67 60 59 62 64 51 54 60 47 599

Social Proposals 63 50 47 50 48 54 43 46 43 29 473

Environmental Proposals 12 17 13 9 14 10 8 8 17 18 126

Presented by

Institutional investor 18 15 14 26 14 17 15 20 23 13 175

Religious organisation 18 13 19 14 18 14 1 7 8 6 118

Others 39 39 27 19 30 33 35 27 29 28 306

As can be seen in Table 1 the distribution remains steady over the years. In the first two years a

relatively large amount of proposals was presented at the shareholder meetings, followed by a slight

decline in proposals in the last year. This decline can partly be explained by data availability, as for

some proposals data was missing in 2015 so they are eliminated from the total sample.

The most obvious conclusion that can be drawn from the type of investor filing the proposal is that

religious organisations were more active in the first years and after that their amount of proposals is

reduced significantly. There is no clear reason for this declining interest, but the number of different

investors filing is relatively small, so if a few religious organizations decide to stop filing proposals this

would have a large impact.

In Table 2 the number of firms and proposals per industry is presented. As described before, the

method by Reverte (2009) is used to classify industries in combination with the Industry Classification

Benchmark. As can be seen in Table 2 the number of firms that operate in a sensitive industry within

the sample is 44, so around a third of the total amount of firms in the sample. This corresponds to

17

the amount of proposals that sensitive firms received, which indicates that firms operating in a

sensitive industry do not receive more proposals than firms operating in non-sensitive industries.

Table 2 Distribution of Firms and Proposals per industry

Industry Firms n Proposals n

Basic materials * 2 14

Consumer goods 37 167

Consumer services 26 81

Financials 8 69

Health care 6 13

Industrials * 25 133

Oil and gas * 11 52

Technology 4 30

Telecommunications 3 28

Utilities * 6 12

Total 128 599

Sensitive industry 44 211

Non-sensitive industry 84 388

Industries marked with * are sensitive industries following Reverte (2009)

The descriptive statistics for the main variables are presented in Table 3. The values for CSRTotal

correspond to the total score for a firm in the Asset4 database. CSREnv and CSRSoc are respectively

the environmental and social scores within the Asset4 database. VProp stands for the number of

votes in favour of a proposal. As such those numbers are given in percentages as well, for the

subdivision for institutional investors, religious organisations and other investors.

Internationalisation is a percentage of foreign sales scaled by total sales and as such is also presented

as a percentage. StakeSize is the percentage of shares owned of total outstanding shares by the

investor who files the proposal.

18

Table 3 Descriptive statistics

Variable Mean Median Min Max Std. Dev.

CSRTotal 82.14 89.51 6.65 98.45 17.53

CSREnv 73.38 84.95 9.61 97.20 26.09

CSRSoc 73.67 78.93 6.91 98.79 20.66

Vprop % 14.57 8.44 0.00 67.11 11.83

Institutional investor % 21.00 22.08 0.00 55.39 12.08

Religious organisation % 11.90 7.42 0.30 38.07 10.14

Other % 11.92 6.98 0.00 67.11 10.82

Internationalisation % 32.09 31.43 0.00 100.00 25.43

StakeSize % 0.05 0.00 0.00 0.92 0.11

The CSR values all have a relatively large standard deviation considering that the theoretically

smallest possible score is 0, while the largest score possible is 100. Next to the total CSR score also

the values for the Environmental and Social performance are given, as they are used in in evaluating

effects on the CSR performance.

It is noteworthy that the total number of votes in favour is relatively high compared to, for example,

Cziraki, Renneboog and Szilagyi (2010) who reported a total percentage in favour of CSR related

proposals of 8,1% in the United Kingdom and 2% in Europe. These differences could occur due to

cultural differences, as shareholder activism has been present longer in the United States (Gillan and

Starks, 2007). Gillan and Starks (2000) recorded a similar average percentage of votes in favour of

shareholder activism of 23.0% for proposals filed in the United States by institutional investors, which

is in line with the results in Table 3 regarding institutional investors.

The internationalisation variable has an average of 32.09% which is relatively low, as the sample

consists of the largest firms within the US. This can be explained by a relatively large amount of firms

who operate solely in the United States within the sample. A total of 35 firms only sell within the

United States and they operate mainly in the healthcare, utilities and oil and gas industry in Table 2 .

There is one firm doing its business entirely outside the United States which is Philip Morris

International, which is confirmed from their annual report (Philip Morris International, 2015).

The numbers for the StakeSize variable are very small. Gillan and Starks (2007) report that most

shareholder activists only own a relatively small number of shares. The stake size of activists is also

influenced by the sample which consists of the largest firms, so large block holders must hold a lot of

capital to gain a large share. The maximum ownership percentage in this sample is 0.92% owned by a

pension fund.

19

In table 4 the Correlation matrix is given for the dependent and independent variables and Firm Size.

Industry is excluded as it is a dummy variable and consists of nominal data and would not add to the

correlation matrix.

Table 4 Correlation Matrix

Variable 1 2 3 4 5 6

1 CSRTotal 1.000 2 %Vprop -0.072 1.000 3 Internationalisation 0.230 ** -0.190 ** 1.000 4 StakeSize -0.141 ** 0.227 ** -0.047 1.000 5 Institution -0.132 ** 0.262 ** -0.102 * 0.450 ** 1.000 6 FirmSize 0.311 ** -0.072 0.273 ** -0.197 ** -0.092 * 1.000

* Significant at the 5% level ** Significant at the 1% level

As can be seen in Table 4 the correlations between most variables are relatively low. Yet there is a

strong correlation between CSRTotal and FirmSize i.e. larger firms do seem to have a better CSR

performance. This could be related to the visibility argument mentioned in the Theory section, which

states that larger firms are more visible to institutions and investors and therefore need to improve

their CSR performance. The relation between number of votes in favour of a proposal and CSR

performance is slightly negative, which contrasts hypothesis 1. Internationalisation, on the other

hand, has a relatively strong relation to CSR performance and this relation is also significant at a 1%

level. However, internationalisation has a negative relation towards the number of votes in favour of

a proposal, which is inconsistent with hypothesis 3. Stake size has a strong positive relation with the

number of votes in favour of a proposal, so an investor with a larger stake in the firm receives more

votes in favour if they present an activist proposal. This supports hypothesis 4. An institution

presenting a proposal regarding environmental or social issues has a positive effect on the number of

votes in favour of a shareholder proposal, but not on the relation between CSR performance and

institutional investors. In general, the relation between the number of votes in favour of proposals

seems stronger than the relations between CSR performance and other variables.

20

Results

This section presents the results of multiple OLS regressions in order to provide an answer to the

main research question. In the first section I look at the total CSR performance of a firm following

activist shareholder proposals, with a one and a two year lag, as is consistent with Dimson, Karakas

and Li (2013). The second section presents a subsample of only activist shareholder proposals

regarding social issues, and for that reason CSR performance is also narrowed towards just the social

part of CSR for that section. The final section does the same, but then for an environmental

subsample and only considers the environmental part of CSR performance. Both of the subsamples

include a one year and a two year lag.

Total CSR performance

The regression results for the OLS-regression regarding total CSR performance are presented in Table

A3 in the Appendix. The first model only shows the control variables industry and firm size regressed

on the dependent variable CSR performance in year t+1. For the industry variable one industry had to

be left out to function, as a reference point and to avoid multicollinearity. In this case, the industry

consumer goods is used as a reference point, as according to Reverte (2009) this is a non-sensitive

industry. Table 2 in the descriptive statistics section shows that consumer goods is one of the larger

industries in the sample, thereby offering a good reference point. The control variable firm size is

consistently highly significant throughout all the regression models used, which is in line with theory,

as numerous papers have described this relation. The industry variable has mixed results, but most of

the industries marked by Reverte (2009) as a sensitive industry do have a higher coefficient

compared to the reference point, which as mentioned is the consumer goods industry. The total

amount of variance explained by the control variables, as given by the adjusted R², is 21.2% for the

control variables. This is relatively low compared to, for example, Gillan and Starks (2000) although

they study all types of shareholder activist proposals in their study, which might explain the

difference.

For model 2 the number of votes in favour of a proposal was added to the regression. The relation

between the number of votes in favour of a proposal and overall CSR performance one year later is

weak and also negative, which does not support hypothesis 1. The adjusted R² does not increase

significantly so the influence of shareholder support for an activist proposal on CSR performance is

rather limited and based on the data might even be negative. In model 3 the internationalisation

variable is added to the control variables. The relation between internationalisation and CSR

performance in year t+1 is both positive and significant at a 1% confidence interval. This provides

evidence for a positive relation between internationalisation and CSR performance. Model 4 includes

21

the StakeSize variable, as well as the control variables. It has a negative relation to CSR performance

and is significant at a 5% confidence interval. This contrasts the expectation of a positive relation

between the variables StakeSize of an investor presenting a proposal and actual CSR performance in

year t+1. Model 5 includes the control variables and the institutional variable; the relation between

total CSR performance and institutional investors presenting a proposal is negative and significant at

5%. In model 6 all the variables are tested together with the interaction effects for stake size,

internationalisation and the amount of votes in favour of a proposal. The introduction of the

interaction variables improves R² a little to 22.4%. Both interaction variables are not significant,

which means that both Stake size and internationalisation have no significant relation to the amount

of votes in favour of an activist proposal. This means that both hypothesis 3 and 4 have to be

rejected as there is no evidence of a moderating relation between these variables.

Model 7 introduces an extra lag in the model. All the variables including the interaction variables are

regressed on total CSR performance two years after the proposal. Since Dimson, Karakas and Li

(2013) claim it takes 1.5 years before changes are implemented there could be a significant effect

two years after the initial shareholder proposal. This is not the case as can be seen in Table A3. The

adjusted R² is lowered significantly to 8.9%, so adding another lag does not improve the model. This

could be due to other factors influencing the CSR performance of a firm. Two years is a relatively long

period and it is possible other factors have influenced the CSR performance.

The final regression done with the total CSR score is presented in table A6 in the Appendix. In model

1 the top quartile of proposals with the most votes in favour of the proposal are selected. This is

done because these proposals have received the most attention by shareholder and it is possible that

management perceives this as a clear signal to implement changes. This is also reflected in the

adjusted R² in the model as 32.2% of the variance is explained. This is significantly higher than for

model 2, in which the bottom quartile of proposals is used so these are the proposals with the least

amount of votes in favour. In model 2 only 15.2% of the variance is explained. This provides some

evidence for signalling theory as it seems that proposals receiving more attention also have an

increased effect on CSR performance in year t+1.

Social CSR performance

Table A4 in the Appendix presents a subsample of the total sample. Here, the dependent variable is

the social pillar of the ASSET4 CSR score and only the proposals regarding social issues are included.

This should give a more accurate regression as, instead of looking at the whole CSR performance just

the topic that is actually mentioned in the proposal is considered in the regresion. This is reflected in

the adjusted R², as in every model the value is a few percent higher than for the regression of total

22

CSR performance. Regarding the relations between variables there is not much difference between

the regressions on total CSR performance and just social performance. The internationalisation

variable is again the variable with the most significance and is slightly positive. Model 7, which

includes a two year lag for social CSR performance, does add value since the adjusted R² is higher

than with just a one year lag and is 28.3%. Thus, for social performance proposals more change in

firm behaviour is reached after two years compared to one year. In the social subsample the

institution variable is significantly negative which does not respond with hypothesis 2.

Environmental CSR performance

In Table A5 the regression is presented with environmental CSR performance as the dependent

variable. This subsample is significantly smaller than the social subsample, which explains why the

variance for the environmental sample is larger. Especially in model 3, which includes the control

variables and internationalization, there is a large increase in the adjusted R². Overall variance

explained by the total model presented in model 6 is significantly higher than the other models as

the adjusted R² is 50.0%. This number is very large compared to the previous scores, but comes near

values reported by Gillan and Starks (2000). The institution variable is in this model insignificant but

positive.

Concluding, hypothesis 1 has to be rejected due to overall negative relations between the amount of

votes in favour of a shareholder proposal and actual CSR performance in both 1 year and 2 years

following the proposal. Furthermore, in the sample of the 150 most favoured proposals and least

voted on proposals no significant effect is noted. Although, when just the 150 proposals with the

largest number of votes in favour are included in the model the adjusted R² is higher.

Hypothesis 2 regards the effect of an institutional investor presenting an activist shareholder

proposal, and also has to be rejected. In both the total CSR performance and social CSR performance

samples the sign was negative and significant contrasting the hypothesis. Only in the smallest

sample, the environmental subsample, there was a positive relation but insignificant.

The third and fourth hypothesis regarding interaction effects between respectively

internationalisation and stake size with the amount of votes of favour for an activist proposal have to

be rejected. In none of the models was there a significant correlation providing evidence for a

relation.

23

Conclusion

This paper examines several factors influencing the Corporate Social Responsibility performance of a

company in the years following an activist shareholder proposal. To study this effect I look into

shareholder proposals regarding environmental and social issues in the period 2006-2015, filed

under Filing 14A at the SEC. From these proposals the percentage of votes in favour of the proposal is

taken and used to look for a correlation with a firms CSR performance in the year following the

proposal. Also, the influence of internationalisation is considered as internationalisation has a

relation to the visibility of a firm for shareholders and other outside stakeholders. Thus, it was

expected that an interaction exists between the internationalisation of a firm and the number of

votes in favour of an activist proposal. Most of the activist shareholder proposals do not gain the

necessary majority to pass the shareholders meeting, but they do send a clear signal for change

when they are backed by more investors. Furthermore, the credibility effect of an institutional

investor is considered. When an institutional investor, such as a pension fund, files a proposal it

becomes more credible, thereby could theoretically increase the effect of the proposal on other

shareholders and the management of the firm. As a final independent variable stake size by the

investor filing the proposal is considered. It was expected that an investor owning a larger stake in a

firm would be more credible for both management of the firm and other investors. As credibility

increases also the number of votes in favour of a proposal would rise, thereby having an interaction

effect. As control variables the size of the targeted firm and industry are included.

All hypotheses regarding the independent variables’ effect on the CSR performance of a firm have

been rejected due to statistical insignificance. Both the hypotheses regarding the interaction effects

between respectively stakesize and internationalisation and the amount of votes in favour of a

proposal have also been rejected. This means that no definite conclusion can be drawn from them.

What was confirmed is that firm size does have a positive influence on the CSR performance of a

firm. Furthermore, internationalisation does have a significant effect on CSR performance, both one

year and two years after the initial proposals.

The fact that all hypotheses have not been confirmed means that no definite answer can be given

regarding the main research question posed at the introduction of this paper. Does a CSR proposal

regarding environmental or social oriented issues have a long-term effect on the environmental or

social performance of a firm?

24

As all research this paper has limitations in which can be improve. For example, for the independent

variable CSR performance only the Asset4 by Thomson Reuters performance score has been used.

However, according to literature this score and other environmental rating scores do converge. It

would be prudent to cross-reference the scores from the Asset4 with scores from, for example, the

Kinder Lydenberg & Domini (KLD) database which could not be done due to data availability. A larger

sample size would also help create more insights in the effect of activist proposals. Especially the

subsample regarding environmental proposals was rather small and would benefit from a larger

sample. Another improvement could be made in the reliability of CSR measurement. In this study I

look for relations between total CSR performance, social or environmental performance in regards to

specific activist proposals. It would be interesting to study the effects of specific proposals into more

detail, i.e. check whether the specific proposed change was implemented instead of looking at total

performance.

For future research it would be interesting to further look into the actual results that shareholder

activism has. There is literature concerning how activists operates, but not much has been written

about actual results yet excluding operational performance results. This focus on operational results

is beneficial for shareholders but ignores the consequences of environmental and societal activism,

which garners less tangible results for an annual report, but is becoming more important to society.

25

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31

Appendix

Table A1 Operationalization variables

Variable Explanation

FirmSize The natural logarithm of the market value of equity IndustryBM Dummy variable that equals one if the firm operates in the basic materials

industry, zero otherwise. IndustryCS Dummy variable that equals one if the firm operates in the consumer services

industry, zero otherwise. IndustryFin Dummy variable that equals one if the firm operates in the financial industry,

zero otherwise. IndustryHC Dummy variable that equals one if the firm operates in the health care

industry, zero otherwise IndustryIND Dummy variable that equals one if the firm operates in the industrial industry,

zero otherwise. IndustryOG Dummy variable that equals one if the firm operates in the oil & gas industry,

zero otherwise. IndustryTECH Dummy variable that equals one if the firm operates in the technology

industry, zero otherwise. IndustryTELEC Dummy variable that equals one if the firm operates in the

telecommunications industry, zero otherwise. IndustryUTIL Dummy variable that equals one if the firm operates in the utilities industry,

zero otherwise.

%Vprop Amount of votes in favour of an activist shareholder proposal. Calculated as percentage of shares at the annual shareholder meeting.

Internationalisation

The level of internationalisation. Calculated as foreign sales scaled by total sales, presented as a percentage.

StakeSize Number of shares owned by the investor filing a proposal. Calculated as shares owned divided by total outstanding shares.

Institution Dummy variable that equals one if the investor filing a proposal is an insitution, zero otherwise.

%VProp_Internationalisation

Interaction term between the amount of votes in favour of a proposal and the level of internationalisation.

%Vprop_StakeSize Interaction term between the amount of votes in favour of a proposal and the stake size of the investor filing the proposal.

32

Table A2 Industry Classification Benchmark

Assigned number Industry

1 Basic materials *

2 Consumer goods

3 Consumer services

4 Financials

5 Health care

6 Industrials *

7 Oil & Gas *

8 Technology

9 Telecommunications

10 Utilities *

33

Table A3 Regression Results CSR Total performance score

Model 1 2 3 4

Coefficient Probability Coefficient Probability Coefficient Probability Coefficient Probability

FirmSize 11.865 0.000 *** 11.697 0.000 *** 10.371 0.000 *** 11.355 0.000 *** IndustryBM 10.323 0.018 ** 10.600 0.015 ** 8.760 0.045 ** 11.148 0.011 ** IndustryCS -7.909 0.000 *** -7.703 0.000 *** -7.593 0.000 *** -7.535 0.000 *** IndustryFin -1.729 0.446 -1.254 0.583 0.195 0.934 -1.532 0.498 IndustryHC 5.506 0.220 5.460 0.224 6.056 0.175 5.101 0.255 IndustryIND 7.820 0.000 *** 7.839 0.000 *** 7.081 0.000 *** 8.015 0.000 *** IndustryOG 2.924 0.238 3.563 0.156 2.927 0.235 3.795 0.129 IndustryTECH 15.134 0.000 *** 15.510 0.000 *** 14.342 0.000 *** 15.055 0.000 *** IndustryTELEC 10.704 0.001 *** 11.058 0.001 *** 12.228 0.000 *** 10.790 0.001 *** IndustryUTIL 12.680 0.007 *** 13.174 0.005 *** 14.258 0.002 *** 13.485 0.004 ***

%Vprop -0.081 0.144 Internationalisation

0.082 0.005 *** StakeSize

-1.278.369 0.031 **

Institution

%VProp_Internationalisation

%Vprop_StakeSize

Constant -11.248 0.288 -8.975 0.401 -2.582 0.814 -6.974 0.516

Observations 599

599 599 599 Adjusted R² 21.2% 21.4% 22.2% 21.7%

* Significant at 10% ** Significant at 5% *** Significant at 1%

34

Table A3 Regression Results CSR Total performance score continued

Model 5 6 7

Coefficient Probability Coefficient Probability Coefficient Probability

FirmSize 11.629 0.000 *** 10.041 0.000 *** 7.558 0.000 *** IndustryBM 11.333 0.010 ** 9.958 0.024 ** -0.334 0.938 IndustryCS -7.392 0.001 *** -6.942 0.001 *** 7.195 0.005 *** IndustryFin -1.047 0.648 0.750 0.753 3.124 0.194 IndustryHC 5.373 0.231 5.454 0.224 1.936 0.671 IndustryIND 7.922 0.000 *** 7.233 0.000 *** 6.323 0.001 *** IndustryOG 3.179 0.199 4.130 0.103 7.316 0.004 *** IndustryTECH

14.777 0.000 *** 14.195 0.000 *** 1.855 0.544 IndustryTELEC

10.555 0.001 *** 12.571 0.000 *** 15.925 0.003 *** IndustryUTIL 13.555 0.004 *** 15.052 0.002 *** 2.522 0.602 %Vprop -0.034 0.564 0.295 0.682 Internationalisation 0.078 0.008 *** -0.787 0,297 StakeSize -1.382 0.076 * 0.098 0.900 Institution -2.416 0.081 * -0.969 0.533 -2.864 0.048 **

%VProp_Internationalisation 0.247 0.691 1.105 0.090 *

%Vprop_StakeSize 0.507 0.396 0.051 0.935 Constant -8.780 0.410 1.086 0.923 23.349 0.042 **

Observations 599 599 492 Adjusted R² 21.5% 22.4% 8.9%

* Significant at 10% ** Significant at 5% *** Significant at 1%

35

Table A4 Regression Results CSR Social performance

Model 1 2 3 4

Coefficient Probability Coefficient Probability Coefficient Probability Coefficient Probability

FirmSize 14.969 0.000 *** 14.748 0.000 *** 13.006 0.000 *** 14.703 0.000 ***

IndustryBM 9.463 0.062 * 9.838 0.053 * 7.555 0.135 9.136 0.072 *

IndustryCS -11.730 0.000 *** -11.450 0.000 *** -10.955 0.000 *** -12.069 0.000 ***

IndustryFin -6.648 0.019 ** -6.010 0.036 ** -3.576 0.225 -6.812 0.016 **

IndustryHC 7.332 0.083 * 7.862 0.064 * 9.731 0.022 ** 7.053 0.096 *

IndustryIND 4.134 0.082 * 4.342 0.068 * 3.604 0.127 3.857 0.106 IndustryOG 8.385 0.028 ** 9.332 0.016 ** 7.408 0.051 * 8.090 0.034 **

IndustryTECH 16.827 0.000 *** 17.524 0.000 *** 15.918 0.000 *** 16.608 0.000 ***

IndustryTELEC 15.869 0.000 *** 16.412 0.000 *** 18.084 0.000 *** 15.617 0.000 ***

IndustryUTIL 12.590 0.056 * 13.633 0.040 ** 14.936 0.023 ** 12.207 0.064 *

%Vprop -0.092 0.184 Internationalisation 0.119 0.001 *** StakeSize 0.447 0.934 Institution %VProp_Internationalisation %Vprop_StakeSize

Constant -42.351 0.003 *** -39.595 0.005 *** -31.643 0.027 ** -40.042 0.005 ***

Observations 473

473 473 473 Adjusted R² 25.4% 25.6% 26.9% 25.0%

* Significant at 10% ** Significant at 5% *** Significant at 1%

36

Table A4 Regression Results CSR Social performance continued

Model 5 6 7 Coefficient Probability Coefficient Probability Coefficient Probability

FirmSize 14.375 0.000 *** 12.240 0.000 *** 12.956 0.000 ***

IndustryBM 10.846 0.033 ** 8.754 0.086 * 6.811 0.209 IndustryCS -11.153 0.000 *** -10.749 0.000 *** -14.828 0.000 ***

IndustryFin -5.628 0.048 ** -2.857 0.339 -2.623 0.436 IndustryHC 6.459 0.127 8.662 0.044 ** 8.544 0.064 *

IndustryIND 4.154 0.079 * 3.464 0.144 2.305 0.366 IndustryOG 9.184 0.016 ** 8.156 0.036 * 5.606 0.215 IndustryTECH 16.062 0.000 *** 15.334 0.000 *** 15.865 0.001 ***

IndustryTELEC 15.499 0.000 *** 17.429 0.000 *** 17.220 0.000 ***

IndustryUTIL 12.446 0.058 * 14.481 0.028 ** 12.035 0.195 %Vprop -0.168 0.853 -0.211 0.832 Internationalisation 2.836 0.003 *** 3.221 0.002 ***

StakeSize 0.253 0.758 0.246 0.635 Institution -4.134 0.018 ** -3.689 0.045 ** -2.899 0.162 %VProp_Internationalisation -0.268 0.734 -0.338 0.710 %Vprop_StakeSize 0.167 0.739 0.246 0.635 Constant -36.365 0.011 ** -20.480 0.172 -25.240 0.140

Observations 473 473 401 Adjusted R² 26.2% 26.7% 28.3%

* Significant at 10% ** Significant at 5% *** Significant at 1%

37

Table A5 Regression Results CSR Environmental performance

Model 1 2 3 4

Coefficient Probability Coefficient Probability Coefficient Probability Coefficient Probability

FirmSize 12.066 0.011 ** 9.659 0.033 ** -4.627 0.353 12.187 0.010 **

IndustryCS -9.447 0.240 -5.580 0.468 -6.702 0.344 -10.429 0.194 IndustryFin -21.080 0.089 * -18.366 0.119 -11.808 0.282 -22.124 0.073 *

IndustryHC -9.950 0.675 8.483 0.713 12.952 0.542 -10.285 0.663 IndustryIND 14.369 0.021 ** 10.348 0.083 * 2.512 0.663 13.726 0.027 **

IndustryOG -19.921 0.001 *** -13.792 0.021 ** -12.255 0.025 ** -18.134 0.003 ***

IndustryTECH 18.223 0.064 * 17.715 0.058 * 8.919 0.308 18.520 0.059 *

IndustryTELEC 11.379 0.214 14.340 0.101 25.973 0.002 *** 12.175 0.182 IndustryUTIL 9.277 0.407 7.097 0.504 23.378 0.022 ** 13.154 0.249 %Vprop -0.846 0.000 *** Internationalisation 0.622 0.000 *** StakeSize -3.950.678 0.119 Institution %VProp_Internationalisation %Vprop_StakeSize

Constant -17.095 0.636 10.638 0.761 89.491 0.015 ** -16.895 0.638

Observations 126

126 126 126 Adjusted R² 19.6% 27.7% 38.0% 20.6%

* Significant at 10% ** Significant at 5% *** Significant at 1% There have been no environmental proposals in the industry Basic Materials in the sample period

38

Table A5 Regression Results CSR Environmental performance continued

Model 5 6 7 Coefficient Probability Coefficient Probability Coefficient Probability

FirmSize 12.098 0.011 ** -8.123 0.077 * -0.878 0.861 IndustryCS -10.473 0.209 -5.006 0.462 -1.511 0.824 IndustryFin -21.511 0.085 * -9.659 0.339 -23.460 0.006 ***

IndustryHC -12.571 0.606 31.447 0.132 12.366 0.535 IndustryIND 14.183 0.023 ** -2.040 0.715 2.432 0.668 IndustryOG -20.211 0.001 *** -3.119 0.553 -8.818 0.264 IndustryTECH 18.185 0.066 * 9.066 0.253 14.870 0.036 **

IndustryTELEC 11.313 0.218 30.084 0.000 *** 26.729 0.000 ***

IndustryUTIL 6.665 0.590 24.562 0.019 ** 18.786 0.087 %Vprop -8.909 0.000 *** -6.783 0.001 ***

Internationalisation 15.918 0.000 *** 11.817 0.000 ***

StakeSize -3.929 0.038 ** -2.872 0.133 Institution 2.910 0.619 3.457 0.493 7.000 0.149 %VProp_Internationalisation 0.880 0.656 -2.275 0.291 %Vprop_StakeSize -2.530 0.146 -2.142 0.234 Constant -17.626 0.627 132.222 0.000 *** 75.856 0.048 **

Observations 126 126 91 Adjusted R² 19.1% 50.0% 45.4%

* Significant at 10% ** Significant at 5% *** Significant at 1% There have been no environmental proposals in the industry Basic Materials in the sample period

39

Table A6 Regression results Top Quartile and Bottom Quartile in regards to amount of votes in favour of a proposal

Model 1 2 Coefficient Probability Coefficient Probability

FirmSize 20.971 0.000 *** 0.133 0.970 IndustryBM 12.838 0.086 * IndustryCS 1.605 0.723 -3.379 0.398 IndustryFin -0.813 0.916 7.262 0.037 **

IndustryHC 15.881 0.069 10.929 0.186 IndustryIND 15.680 0.001 *** 6.504 0.012 **

IndustryOG 5.163 0.313 4.630 0.180 IndustryTECH 39.261 0.000 *** 11.946 0.001 ***

IndustryTELEC 18.656 0.004 *** 11.357 0.057 *

IndustryUTIL 18.328 0.034 ** %Vprop 0.318 0.839 1.111 0.301 Internationalisation 3.122 0.045 ** 3.399 0.006 ***

StakeSize 0.643 0.693 0.484 0.637 Institution -1.408 0.731 3.340 0.169 %VProp_Internationalisation 1.337 0.323 -0.364 0.691 %Vprop_StakeSize 0.643 0.693 0.484 0.637 Constant -86.794 0.001 *** 80.705 0.005 ***

Observations 150

150 Adjusted R² 31.2% 15.2%

* Significant at 10% ** Significant at 5% *** Significant at 1% There have been no environmental proposals in the industry Basic Materials in the sample period. IndustryUTIL and IndustryBM did not receive proposals within the bottom 150 sample of model 2

40

Table A7 Firms within the sample

1 3M 45 Hess 89 Prudential Financial

2 Abbott Labaratories 46 Honeywell 90 R.R. Donnelly & Sons

3 Alphabet 47 Illinois Tool Works 91 Raytheon

4 Altria Group 48 Intel 92 Safeway

5 Amazon 49 IBM 93 Sears Holdings

6 American Express 50 ITT 94 Smithfields Foods

7 American International Group 51 J.C. Penney 95 Staples

8 Amgen 52 Johnson & Johnson 96 Starbucks

9 Anthem 53 JPMorgan & Chase 97 State Street

10 Apple 54 KBR 98 SunTrust Banks

11 Archer-Daniels 55 Kellogg 99 Supervalu

12 AutoNation 56 Kimberley Clark 100 Sysco

13 Bank of America 57 Kinder Morgan 101 Target

14 Baxter International 58 Lear 102 The Allstate

15 BB&T Group 59 Lockheed Martin 103 The Boeing

16 Cardinal Health 60 Loews 104 The Coca Cola

17 CBS Corporation 61 Lowe's 105 The Gap

18 Chesapeake energy 62 Manpower 106 The Goldman Sachs

19 Chubb Limited 63 Marathon Oil 107 The Hillshire Brothers & Co

20 Cigna 64 Marathon Petroleum 108 The Home Depot

21 Cisco Systems 65 Marsh & McLennan 109 The Kroger

22 Citigroup 66 McDonald's 110 The Southern

23 Colgate-Palmolive 67 McKesson 111 The TJX Companies

24 Comcast 68 Merck 112 The Travelers Companies

25 ConAgra 69 Mondelez 113 The Walt Disney

26 CostCo 70 Motorola Solutions 114 Time Warner Cable

27 CVS Health 71 Morgan Stanley 115 Time Warner Inc

28 Dean Foods 72 Monsanto 116 Twenty-First Century Fox

29 Dish Network 73 Murphy Oil 117 Tyson Foods

30 Duke Energy 74 National Oilwell Varco 118 Union Pacific

31 E.I. Du Pont 75 NextEra Energy 119 United Continental Holdings

32 eBay 76 Nike 120 United Parces Service

33 Ecolab 77 Northrop Grunman 121 United Health Group

34 Eli Lilly 78 Oneok 122 Verizon Communications

35 EOG resources 79 Omnicon 123 Visa

36 Exelon Corporation 80 Occidental Petroleum 124 Walgreen Boots Alliance

37 Exxon Mobil 81 Oracle 125 Waste Management

38 FedEx corporation 82 PepsiCo 126 Wells Fargo & Co

39 Ford Motor 83 Pfizer 127 Whole Foods Market

40 General Dynamics 84 PG&E 128 Xcel Energy

41 General Mills 85 Philip Morris

42 Genworth Financials 86 PPG Industries

43 Gilead Sciences 87 PPL

44 Halliburton 88 Procter and Gamble