Stakeholder Activism, Managerial Entrenchment, and the Congruence of Interests between Shareholders and Stakeholders



Figure 4: The continuous (dotted) curve represents shareholder value when entrenchment is
(not) to be countered. Shareholders preempt entrenchment: π
* = 0.038 and br(∏*) = 0.063.

4.2 Stakeholder welfare and managerial job security

Stakeholders’ welfare function changes according to whether xr and π lie below or above
the locus x
br(π). By lemma 3, whenever xr xbr (π), WST coincides with (1); hence, it
is increasing in x
r as well as π : stakeholders can only benefit from the replacement of an
inefficient manager. When instead x
r < xbr (π), stakeholders’ welfare writes as:

WST (π, xr) =

I + π(1 a)(θR θI)] [xr + (1 xr)λ] B + (1 π(1 a))θI(1 xr)(1 λ)x*(π,xr)B

which is also increasing in π and xr. Notice that the additional term with respect to (1)
represents the benefit of managerial concessions: stakeholders now have a further motive
for endorsing corporate governance rules that enhance managerial turnover, to the extent
that the incumbent’s concessions are an increasing function of π. Indeed, bad corporate
governance rules allowing anti-takeover defenses and staggered boards make CEOs less eager
to appeal to stakeholders, in that they do not need stakeholders’ support to buttress their
positions. This implies that even those stakeholders who would support incumbent CEOs in
return for concessions prefer the firm’s control to be contestable ex ante:

Corollary 1 Although stakeholder activists may want to side with the incumbent CEO at
t=1, their welfare is always increasing in the quality of corporate governance rules enhancing

18



More intriguing information

1. TINKERING WITH VALUATION ESTIMATES: IS THERE A FUTURE FOR WILLINGNESS TO ACCEPT MEASURES?
2. Categorial Grammar and Discourse
3. The name is absent
4. PROJECTED COSTS FOR SELECTED LOUISIANA VEGETABLE CROPS - 1997 SEASON
5. The name is absent
6. The name is absent
7. Who’s afraid of critical race theory in education? a reply to Mike Cole’s ‘The color-line and the class struggle’
8. Transport system as an element of sustainable economic growth in the tourist region
9. Self-Help Groups and Income Generation in the Informal Settlements of Nairobi
10. Portuguese Women in Science and Technology (S&T): Some Gender Features Behind MSc. and PhD. Achievement
11. Getting the practical teaching element right: A guide for literacy, numeracy and ESOL teacher educators
12. Education and Development: The Issues and the Evidence
13. Industrial districts, innovation and I-district effect: territory or industrial specialization?
14. EXECUTIVE SUMMARIES
15. Lumpy Investment, Sectoral Propagation, and Business Cycles
16. Reform of the EU Sugar Regime: Impacts on Sugar Production in Ireland
17. The name is absent
18. CGE modelling of the resources boom in Indonesia and Australia using TERM
19. A Pure Test for the Elasticity of Yield Spreads
20. The Integration Order of Vector Autoregressive Processes