Hostname: page-component-cd9895bd7-gvvz8 Total loading time: 0 Render date: 2024-12-25T20:08:07.708Z Has data issue: false hasContentIssue false
  • English
  • Français

The Ethical Implications of Ignoring Shareholder Directives to Remove Antitakeover Provisions

Published online by Cambridge University Press:  23 January 2015

Shawn D. Howton ,
Shelly W. Howton  and
Victoria B. McWilliams
Get access Rights & Permissions [Opens in a new window]

Abstract

Managers have a unique fiduciary responsibility to shareholders of a firm that implies a set of ethical obligations. At a minimum, managers are required to protect shareholder’s interests when other stakeholders are unaffected by their decision. This ethical imperative has been established in the literature. In cases of conflicts of interest between managers and shareholders, the board of directors of the firm has an ethical obligation to shareholders. The structure of the board can affect its ability to fulfill this obligation. Two specific cases where managerial actions have been argued to be unethical are the adoption of classified boards and poison pills. In this study, we empirically analyze the role of board structure in protecting shareholder rights in the specific case of antitakeover provisions. We test this question on a sample of firms whose shareholders have voted to remove antitakeover provisions and find that independent, focused boards are more likely to accede to shareholder resolutions than are less independent boards. Board size is also important and related to other board structures. We draw implications of this finding for future research on the ethics of board governance.

What’s really needed is a change in mindset—one that fosters not only a culture of compliance but also a company-wide environment that fosters ethical behavior and decision-making.—William H. Donaldson, SEC Chairman (2004)

Type
Articles
Information
Business Ethics Quarterly , Volume 18 , Issue 3 , July 2008 , pp. 321 - 346
Copyright
Copyright © Society for Business Ethics 2008

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Arjoon, S., 2005. Corporate governance: An ethical perspective. Journal of Business Ethics, 61: 343–52.CrossRefGoogle Scholar
Bacon, C. J., Cornett, M. M., & Davidson, W. N., 1997. The board of directors and dual-class recapitalizations. Financial Management, 26: 5–22.CrossRefGoogle Scholar
Bebchuk, L. A., 2005. The case for increasing shareholder power. Harvard Law Review, 118: 833–914.Google Scholar
Bebchuk, L. A., Coates, J. C., & Subramanian, G., 2002. The powerful antitakeover force of staggered boards: Further findings and a reply to symposium participants. Stanford Law Review, 55: 885–917.CrossRefGoogle Scholar
Bebchuk, L. A., & Cohen, A. 2005. The costs of entrenched boards. Journal of Financial Economics, 78: 409–33.CrossRefGoogle Scholar
Bizjak, J. M., & Marquette, C. J. 1998. Are shareholder proposals all bark and no bite? Evidence from shareholder resolutions to rescind poison pills. Journal of Financial and Quantitative Analysis, 33: 499–530.CrossRefGoogle Scholar
Boatright, J. R. 1994. Fiduciary duties and the shareholder-management relation: Or, what’s so special about shareholders. Business Ethics Quarterly, 4: 393–407.CrossRefGoogle Scholar
Boatright, J. R.. 2007. Ethics in finance. Cambridge, MA: Blackwell.Google Scholar
Boone, A. L., Casares-Field, L., Karpoff, J. M., & Raheja, C. G. 2007. The determinants of board size and compositions: An empirical analysis. Journal of Financial Economics, 85: 66–101.CrossRefGoogle Scholar
Brickley, J. A., Coles, J. L., & Terry, R. L. 1994. Outside directors and the adoption of poison pills. Journal of Financial Economics, 35: 371–90.CrossRefGoogle Scholar
Brown, L. D., & Caylor, M. L. 2006. Corporate governance and firm valuation. Journal of Accounting and Public Policy, 25: 409–34.CrossRefGoogle Scholar
Claessens, S., Djankov, S., Fan, J. P. H., & Lang, L. H. P. 2002. Disentangling the incentive and entrenchment effects of large shareholders. Journal of Finance, 57: 2741–72.CrossRefGoogle Scholar
Core, J. E., Holthausen, R. W., & Larcker, D. F. 1999, Corporate governance, ceo compensation, and firm performance. Journal of Financial Economics, 51: 371–406.CrossRefGoogle Scholar
Cremers, K. J., & Nair, V. B. 2006. Governance mechanisms and equity prices. Journal of Finance, 60: 2859–94.CrossRefGoogle Scholar
Daily, C. M., McDougall, P. P., Covin, J. G., & Dalton, D. R. 2002. Governance and strategic leadership in entrepreneurial firms. Journal of Management, 28: 387–412.CrossRefGoogle Scholar
Dalton, D. R., & Daily, C. M. 1999. What’s wrong with having friends on the board? Across the Board, 36(3): 28–32.Google Scholar
Dalton, D. R., Daily, C. M., Certo, S. T., & Roengpitya, R. 2003. Meta-analyses of financial performance and equity: Fusion or confusion? Academy of Management Journal, 46: 13–26.CrossRefGoogle Scholar
Dalton, D. R., Daily, C. M, Johnson, J. L., & Ellstrand, A. E. 1999. Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42: 674–86.CrossRefGoogle Scholar
Dalton, C. M., & Dalton, D. R. 2005. Boards of directors: Utilizing empirical evidence in developing practical prescriptions. British Journal of Management, 16: S91–S97.CrossRefGoogle Scholar
David, P., Bloom, M., & Hillman, M. 2007. Investor activism, managerial responsiveness, and corporate social performance. Strategic Management Journal, 28: 91–100.CrossRefGoogle Scholar
Davidson, W. N., Pilger, T., & Szakmary, A. 2004. The importance of board composition and committee structure: The case of poison pills. Corporate Ownership & Control, 1(3): 81–95.CrossRefGoogle Scholar
Davis, G. F., & Thompson, T. A. 1994. A social movement perspective on corporate control. Administrative Science Quarterly, 39: 141–73.CrossRefGoogle Scholar
DeAngelo, H., & Rice, E. 1983. Antitakeover charter amendments and stockholder wealth. Journal of Financial Economics, 11: 329–60.CrossRefGoogle Scholar
Denis, D. J., Denis, D. K., & Sarin, A. 1997. Ownership structure and top executive turnover. Journal of Financial Economics, 45: 193–222.CrossRefGoogle Scholar
Donaldson, W. H. 2003. Corporate governance. Business Economics, 38: 16–21.Google Scholar
Donaldson, W. H.. 2004. Remarks before the Caux Round Table, Minneapolis, Minnesota November 30, 2004.Google Scholar
Driscoll, D. M. 2001. Ethics and corporate governance: Lessons learned from a financial services model. Business Ethics Quarterly, 11: 145–58.CrossRefGoogle Scholar
Easterbrook, F. H., & Fischel, D. R. 1996. The economic structure of corporate law. Cambridge, MA: Harvard University Press.Google Scholar
Faleye, O. 2007. Classified boards, firm value, and managerial entrenchment. Journal of Financial Economics, 83: 501–29.CrossRefGoogle Scholar
Fich, E M., & Shivdasani, A. 2006. Are busy boards effective monitors? Journal of Finance, 61: 689–724.CrossRefGoogle Scholar
Firstenberg, P. B., & Malkiel, B. G. 1994. The twenty-first century boardroom: Who will be in charge? Sloan Management Review, 36: 27–35.Google Scholar
Freeman, R. E. 1984. Strategic management: A stakeholder approach. Pitman Series in Business and Public Policy. Boston: Pitman.Google Scholar
Gillan, S. L., & Starks, L. 2000. Corporate governance proposals and shareholder activism: The role of institutional investors. Journal of Financial Economics, 57: 275–305.CrossRefGoogle Scholar
Gompers, P., Ishii, J., & Metrick, A. 2003. Corporate governance and equity prices. The Quarterly Journal of Economics, 118: 107–55.CrossRefGoogle Scholar
Goodpaster, K. E. 1991. Business ethics and stakeholder analysis. Business Ethics Quarterly, 1: 53–73.Google Scholar
Goodpaster, K. E., & Halloran, T. 1994. In defense of a paradox. Business Ethics Quarterly, 4: 423–29.CrossRefGoogle Scholar
Goodstein, J., Gautam, K., & Boeker, W. 1994. The effects of board size and diversity on strategic change. Strategic Management Journal, 15: 241–50.CrossRefGoogle Scholar
Hambrick, D. C., & Jackson, E. M. 2000. Outside directors with a stake: The linchpin in improving governance. California Management Review, 42(4): 108–27.CrossRefGoogle Scholar
Harvard Law Review. 2006. Beyond “independent” directors: A functional approach to board independence. Vol. 119: 1553–75.Google Scholar
Hebb, T., 2006. The economic inefficiency of secrecy: Pension fund investors’ transparency concerns. Journal of Business Ethics, 63: 385–405.CrossRefGoogle Scholar
Hillman, A. J., & Dalziel, T. 2003. Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review, 28: 383–96.CrossRefGoogle Scholar
Hosmer, L. T. 2000. It’s time for empirical research in business ethics. Business Ethics Quarterly, 10: 233–42.CrossRefGoogle Scholar
Huang, H. 2006. How independent should the board be? Corporate board structure from a voting perspective. Corporate Ownership & Control, 3(3): 148–56.CrossRefGoogle Scholar
IRRC Corporate Takeover Defenses, 2000 and 2004, compiled by Virginia, Rosenbaum.Google Scholar
Jarrell, G. A., & Poulsen, A. 1987. Shark repellents and stock prices: The effects of antitakeover amendments since 1980. Journal of Financial Economics, 19:127–68.CrossRefGoogle Scholar
Jensen, M. C., & Murphy, K. J. 1990. CEO incentives: It’s not how much you pay, but how. Harvard Business Review, 68(3): 138–49.Google ScholarPubMed
Lawler, E. E., & Finegold, D. L. 2005. The changing face of corporate boards. Sloan Management Review, 46(2): 67–70.Google Scholar
Lee, S. K., & Carlson, L. R. 2007. The changing board of directors: Board independence in S&P 500 firms. Journal of Organizational Culture, Communication, and Conflict, 11(3): 31–42.Google Scholar
Linn, S. C., & McConnell, J. J. 1983. An empirical investigation of the impact of antitakeover amendments on common stock prices. Journal of Financial Economics, 11: 361–99.CrossRefGoogle Scholar
Lipton, M., & Lorsch, J. W. 1992. A modest proposal for improved corporate governance. Business Lawyer, 48: 59–77.Google Scholar
Malatesta, P., & Walkling, R. 1988. Poison pill securities: Stockholder wealth, profitability, and ownership structure. Journal of Financial Economics, 20: 347–76.CrossRefGoogle Scholar
Marcoux, A. M. 2003. A fiduciary argument against stakeholder theory. Business Ethics Quarterly, 13: 1–24.CrossRefGoogle Scholar
Marens, R. & Wicks, A. 1999. Getting real: Stakeholder theory, managerial practice, and the general irrelevance of fiduciary duties owed to shareholders. Business Ethics Quarterly, 9: 273–93.CrossRefGoogle Scholar
McWilliams, V. B., & Sen, N. 1997. Board monitoring and antitakeover amendments. Journal of Financial and Quantitative Analysis, 32: 491–505.CrossRefGoogle Scholar
Meade, N. L., & Davidson, D. 1993. The use of “shark repellents” to prevent corporate takeovers: An ethical perspective. Journal of Business Ethics, 12: 83–93.CrossRefGoogle Scholar
Pitcher, P., Chreim, S., & Kisfalvi, V. 2000. CEO succession research: Methodological bridges over troubled waters. Strategic Management Journal, 21: 625–48.3.0.CO;2-A>CrossRefGoogle Scholar
Raheja, C. G. 2005. Determinants of board size and composition: A theory of corporate boards. Journal of Financial and Quantitative Analysis, 40: 283–306.CrossRefGoogle Scholar
Rechner, P., Sundaramurthy, C., & Dalton, D. 1993. Corporate governance predictors of adoption of antitakeover amendments: An empirical analysis. Journal of Business Ethics, 12: 371–78.CrossRefGoogle Scholar
Rindova, V. 1999. What corporate boards have to do with strategy: A cognitive perspective. Journal of Management Studies, 36: 953–75.CrossRefGoogle Scholar
Roe, M. J. 1994. Strong managers, weak owners: The political roots of American corporate finance. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
Roe, M. J. 1997. The political roots of American corporate finance. Journal of Applied Corporate Finance, 9: 8–22.CrossRefGoogle Scholar
Ryngaert, M. 1988. The effect of poison pill securities on shareholder wealth. Journal of Financial Economics, 20: 377–417.CrossRefGoogle Scholar
Schwartz, M. S., Dunfee, T. W., & Kline, M. J. 2005. Tone at the top: An ethics code for directors? Journal of Business Ethics, 58: 79–100.CrossRefGoogle Scholar
Shen, W. 2005. Improve board effectiveness: The need for incentives. British Journal of Management, 16: S81–S89.CrossRefGoogle Scholar
Street, M., & Street, V. L. 2006. The effects of escalating commitment on ethical decision-making. Journal of Business Ethics, 64: 343–56.CrossRefGoogle Scholar
Sundaramurthy, C. 2000. Antitakeover provisions and shareholder value implications: A review and a contingency framework. Journal of Management, 26(5): 1005–30.CrossRefGoogle Scholar
Sundaramurthy, C., & Lewis, M. 2003. Control and collaboration: Paradoxes of governance. Academy of Management Review, 38: 397–415.CrossRefGoogle Scholar
Sundaramurthy, C., Mahoney, J. M., & Mahoney, J. T. 1997. Board structure, antitakeover provisions, and stockholder wealth. Strategic Management Journal, 18: 231–45.3.0.CO;2-V>CrossRefGoogle Scholar
Sundaramurthy, C., Rechner, P., & Wang, W. 1996. Governance antecedents of board entrenchment: The case of classified board provisions. Journal of Management, 22: 783–99.CrossRefGoogle Scholar
Vafeas, N. 2003. Length of board tenure and outside director independence. Journal of Business, Finance, and Accounting, 30: 1043–66.CrossRefGoogle Scholar
Wilcox, T. 1988. The use and abuse of corporate powers in warding off corporate raiders. Journal of Business Ethics, 7: 47–54.CrossRefGoogle Scholar
Williams, C. C., &. Ryan, L. V. 2007. Courting shareholders: The ethical implications of altering corporate ownership structures. Business Ethics Quarterly, 17: 669–88.CrossRefGoogle Scholar
Williams, R. J., Fadil, P. A., & Armstrong, R. W. 2005. Top management team tenure and corporate illegal activity: The moderating influence of board size. Journal of Managerial Issues, 17: 479–93.Google Scholar
Yermack, D. 1996. Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40: 185–213.CrossRefGoogle Scholar