Shareholder Activism and Corporate Governance: A Comparative Study of India, the United Kingdom and the United States

Abstract

Shareholder activism has emerged as one of the most potent forces shaping the landscape of corporate governance throughout the world. What started out as a peripheral concern of corporate law thirty years ago has burgeoned into the primary means through which owners of capital seek to 'discipline management', 'control strategy' and 'challenge the board'. The manifestation, intensity and treatment of activism, however, vary profoundly depending on how corporate ownership is organised, the provisions of a jurisdiction's securities law regime, and whether its courts are prepared to intervene in disputes within corporations. The paper offers a comparative overview of activism and corporate governance in three jurisdictions that embody clearly distinct governance traditions: (i) the United States, with a largely dispersed pattern of ownership and a landscape dominated by hedge funds engaged in aggressive activism; (ii) the United Kingdom, with a maturing, stewardship-centred soft law regime; and (iii) India, an economy of tightly concentrated, promoter-dominated companies in which activism remains nascent. Drawing on legislation, judicial decisions, regulatory reports and the extensive scholarly literature on the subject, the paper seeks to demonstrate that the success of an activist intervention depends less on rights that exist on paper than on the combination of the degree of concentration of shareholdings, the enforcement framework and the robustness of the institutional shareholder base. It concludes with proposals that the Indian system could draw, selectively and with caution, from the other two jurisdictions in order to make shareholder activism a more effective mechanism.