How Twitter Is Disrupting Shareholder Activism

Shareholders are organizing and mobilizing on new social media platforms like Twitter. This changes the dynamics of shareholder proxy contests to favor small shareholders over management. Disruptive technology may bring about a shareholder revolution, which may not be in all shareholders’ best interests, at least from the perspective of shareholder wealth maximization, and it also has powerful implications for the future of corporate social responsibility.

Twitter and other social media are platforms for global social interaction. A twitter user can send a “tweet,” which is a sort of 140-character text message, to the world. About 500 million tweets are sent every day.[1]

Social media facilitate mass collective action,[2] such as the mass political revolution called the 2012 Arab Spring.[3] Corporate stockholders also use social media like Twitter, Facebook, Wikipedia and Wikileaks to “democratize” and take action against management.

A lot can be said in 140 characters. In a tweet reminiscent of the vitriolic communications bubbling through the Arab Spring, Carl Icahn, the famous activist shareholder, tweeted caustically, “All would be swell at Dell if Michael and the board bid farewell.”[4] Shareholders who would never rationally read a 300-page proxy statement might respond to a 140-character tweet.

The SEC’s Shareholder voting rules limit shareholder democracy by making it procedurally costly for shareholders to participate. If shareholders actually want to vote for a precatory proposal or against   management, they still need to fill out a proxy card or attend the annual meeting to vote.[5] The proposing shareholder has to actually attend the meeting.[6] These are relatively expensive steps for small shareholders to undertake.

In a social media world, why does a physical meeting even need to take place? The proxy process could be replaced with direct, real-time shareholder democracy. We could achieve a new level of shareholder democracy today with the revision of a few SEC rules[7] (at least in the states whose corporate law allows for virtual shareholder meetings).[8] But technical capacity for shareholder democracy begs the question, is shareholder democracy good? Your answer may depend on whether you prioritize corporate social responsibility or shareholder wealth management.

Grassroots shareholder activism to date has focused predominately on corporate social responsibility issues. For example, shareholders have organized for four consecutive years to press ExxonMobile and other oil and gas companies to disclose the dangers of hydraulic fracking. Management vehemently opposed this corporate-social-responsibility initiative. But when the ExxonMobile shareholders got enough votes to pass a precatory proposal to study and disclosure the risks of hydraulic fracturing (or “fracking”), management capitulated.[9]

Shareholder campaigns need not be successful in moving management to change its policies to be effective in accomplishing goals of raising awareness and increasing corporate social responsibility. For example, Grassroots activist shareholders – who organized on the Internet – descended on Safeway’s annual shareholder meeting to protest genetically engineered foods. The proposal did not pass, but the demonstrations – which included demonstrators in biohazard suits dumping Safeway produce in garbage bins in front of the Marriott hotel where the conference was held – attracted more than their fair share of media attention.[10]

Shareholder activism out of control may look less like Bulldog Investors[11] and more like Occupy Wall Street.[12]Grassroots shareholder activism is not necessarily directed at unlocking shareholder value. In fact, many grassroots shareholder campaigns are sponsored by shareholders with minimal holdings. The old name for these pesky shareholders was to call them “corporate gadflies.”[13]  Some gadflies are peskier than others: two-thirds of all proposals submitted to Fortune 150 companies by individual investors between 2008 and 2011 came from Evelyn Davis and members of the Steiner, Chevedden and Rossi families. [14]

Whether shareholder democracy is good or bad is an immensely personal and political question. Corporate law has not – and may never – settle on whether corporations must maximize shareholder wealth or prioritize corporate social responsibility. It is clear, however, that shareholder democracy, at least in this age of social media, is a force for corporate social responsibility.

One way to unlock shareholder democracy is simply to allow Internet voting. The shareholder annual meeting is an anachronism. It creates expense without adding value. The only ones who benefit from this meeting are the entrenched, institutional investors. Small shareholders who cannot afford to attend the meeting are excluded from the process, just as small shareholders who were not invited to attend the quarterly analyst calls were excluded from timely receiving material non-public information.

The shareholder revolution will not be televised. It will be simulcast, tweeted, shared and +1’d. Human communication is changing due to technologic advancement, and intra-shareholder communication is changing along with it. SEC rules about how shareholder may communicate with each other and management currently restrain the potentially disruptive force of innovative communication.

Thanks to social media and internet voting technology, shareholder democracy, long considered a myth, could become a reality. The question remains, how much shareholder democracy do we really want?

ENDNOTES

[1] About Twitter, TWITTER (last visited Jan. 5, 2015).

[2] See, e.g., Alexandra Segerberg and W. Lance Bennett, Social Media and the Organization of Collective Action: Using Twitter to Explore the Ecologies of Two Climate Change Protests, 14 COMM’N REV. 197 (2011).

[3]  See, e.g., P.N. Howard, et al., Opening Closed Regimes: What Was the Role of Social Media during the Arab Spring?, PITPI (2011) (working paper).

[4] Carl Icahn, 8:12 AM – 24 Jul 2013 Tweet, TWITTER (last visited Jan. 9, 2015).

[5] Shareholder Proposals, 17 C.F.R § 240.14a–8 (2011).

[6] Id.

[7] SEC rules that hold back shareholder democracy include (1) a shareholder making a proposal must attend the physical meeting if one is held, (2) shareholders can vote only at the annual meeting and not on an ongoing basis and (3) shareholder votes are “precatory” and thus non-binding. Elimination of any or all of these federal rules would facilitate shareholder (direct) democracy. The flip side of shareholder democracy is board insulation. See, e.g., Lucian A. Bebchuk, The Myth that Insulating Boards Serves Long-Term Value, 113 Colum. L. Rev. 1637 (2013).

[8] Twenty-two states, including Delaware, allow virtual-only shareholder meetings. Federal laws are silent regarding virtual-only shareholder meetings. The New York Stock Exchange and NASDAQ requires listed companies to provide shareholder with the opportunity to discuss company affairs with management, which a virtual meeting can provide. See, e.g., The Best Practices Working Group for Online Shareholder Participation in Annual Meetings, Guidelines for Protecting and Enhancing Online Shareholder Participation in Annual Meetings, Broadridge (2012).

[9] Amanda Maull, The Promise of Shareholder Activism, Mobilizing Ideas (April 14, 2014).

[10] Julie Light, Seeds of Resistance: Grassroots Activism vs. Biotech Agriculture, CorpWatch (May 25, 2000).

[11] Bulldog Investors is run by activist investor Phillip Goldstein, who is notable for his consistently value-oriented investment strategy. Goldstein identifies companies that appear to be undervalued because of mismanagement and seeks to replace management. See, e.g., Stephanie Dahle, Philip Goldstein, Forbes (December 10, 2008).

[12] Occupy Wall Street was a grassroots protest movement characterized by concerns with global and social inequality but lacking central leadership or a clear message. In fact, Adbusters lampooned the movement in an advertisement for it which read, “What is our one demand? #occupywallstreet September 17th. Bring Tent.” The ‘#’ symbol, called a hashtag, is a Twitter convention used to connect a specific tweet with a trending topic. See Michael Bierut, The Poster that Launched a Movement (Or Not), The Design Observer Group (April 30, 2012).

[13] The gadfly is a tiny fly that annoys horses. The name also refers to a person who upsets the status quo. But this humble creature has also been honored by several Soviet films, operas and musicals. It is also Cheerful-class screw gunboat in the British Royal Navy.

[14] A Report on Corporate Governance and Shareholder Activism, Proxy Monitor (Fall 2011).

The preceding post came to us from Professor Seth C. Oranburg, Visiting Assistant Professor at Florida State University College of Law.  It is based on his paper “A Little Birdie Said: How Twitter Is Disrupting Shareholder Activism” available here.

1 Comment

  1. Noel Shippey

    Thought provoking. An interesting take away is how shareholder democracy (i.e. increased participation by the average small investor) can be advanced by technological advancements and social media.

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