Can Public Opinion Influence Shareholder Engagement?

Public sentiment regarding corporate practices has become increasingly pronounced, particularly with the rise of social media and the democratization of information. This heightened public engagement encompasses a variety of issues including, for example, a company’s financial performance, products, environmental policies, and treatment of employees. Traditional media coverage and social media interactions serve as platforms for capturing public sentiment. Public sentiment can not only influence a corporation’s management and its board of directors, but it can also affect shareholders, including large institutional investors such as mutual funds, pension funds, and asset managers. Institutional investors often monitor public sentiment alongside conducting other research to inform their investment decisions. 

Shareholders can voice their dissent by submitting shareholder proposals that get voted on at a firm’s annual shareholder meeting. In our analysis of the relationship between public sentiment and shareholder actions, we provide two innovative contributions. First, we use unique measures of public sentiment to capture the public’s views regarding not only a firm’s traditional financial and governance attributes but also newer issues of interest such as climate risk and social concerns. We obtain our proxy for sentiment from LSEG’s MarketPsych Analytics, which generates sentiment data by employing state-of-the-art textual analysis and machine learning on a large collection of news and social media content to measure public sentiment in a highly granular fashion. The data captures public sentiment for individual firms on specific topics, down to a given date or even minute. Second, our paper introduces a novel approach to assess shareholder dissatisfaction with firm management. Rather than relying on voting outcomes for shareholder proposals, we use the number of shareholder proposals submitted as the primary indicator of shareholder dissent. Although most shareholder proposals fail to receive majority support, they can still influence awareness and outcomes (He, Kahraman and Lowry (2023). Thus, focusing on voting outcomes can diminish the importance of these proposals. Further in any given year, the majority of firms do not have a shareholder proposal on the ballot – either because shareholders have no significant concerns or because they express their dissatisfaction through other means, such as voting against management-nominated directors. To account for this alternative form of dissent, we include an additional measure for robustness: shareholder support for directors. 

The number of shareholder proposals reflects both general shareholder dissent and the range of issues for shareholder concerns. For example, the number of shareholder proposals on the Amazon proxy statement varied across years with 15 proposals in 2022, 18 in 2023 and 14 in 2024. These proposals addressed diverse topics such as executive compensation policies, climate goals, racial and gender pay gaps, warehouse conditions, and tax transparency, among others. The relatively large number of proposals compared to other firms represents the shareholder dissatisfaction with Amazon’s leadership. The approach of using the count of shareholder proposals offers a more comprehensive representation of shareholder concerns in a given year. In particular, this approach allows us to examine the association between public sentiment and shareholder dissent across all firms, including those without shareholder proposals – where the absence of shareholder proposals itself reflects important information. 

We show that the number of shareholder proposals effectively captures investor dissatisfaction with a firm, particularly since it includes firms without shareholder proposals. We find that negative sentiment about financial, governance, environmental, and social issues is significantly associated with more shareholder proposals, and we establish causality through a creative instrumental variable approach. Further, shareholder actions have real consequences. We find that the larger the number of shareholder proposals, the higher the likelihood of forced CEO turnover and director turnover. Additionally, lower public sentiment leads to less support for management-sponsored director nominees. Further, we find that each of the measures of public sentiment, from ESG to financial sentiments, are associated with the director support rate. 

In order to examine whether the effect of public sentiment on shareholder proposals is causal, we ideally need variation in public sentiment independent of firm fundamentals that may directly influence shareholder actions. We propose that such variation arises in the context of ‘scandal movies’ – films that expose a firm’s historical misconduct. Given that the scandals depicted occurred in the distant past, the release of these movies is unlikely to reflect the firm’s current fundamentals but may negatively impact public sentiment toward the firm. Analyzing a sample of firms featured in scandal movies, we observe a decline in public sentiment relative to control firms. Using the presence of a scandal movie as an instrument for public sentiment allows us to assess its causal effect on shareholder proposals. In this setting, we again find that more negative (instrumented) public sentiment leads to an increase in the number of shareholder proposals. 

Our insights have significant implications for corporate leaders and investors alike. For management, the warning is: ignoring public sentiment can lead to increased shareholder activism and leadership turnover. For investors, our findings highlight the effectiveness of acting with public’s voice in leading to corporate change. In today’s democratized information environment, companies can no longer operate behind closed doors, shielded from public scrutiny. Shareholders, armed with public sentiment data, are increasingly willing to hold management accountable. This new reality underscores the importance of transparency and responsiveness in maintaining investor trust and long-term value creation. 

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Reena Aggarwal is a Robert E. McDonough Professor of Finance at Georgetown University, and an ECGI Research and Board Member.

Hoa Briscoe-Tran is an Assistant Professor in Finance at the University of Alberta.

Isil Erel is the David A. Rismiller Chair in Finance at the Fisher College of Business of the Ohio State University, a research associate at NBER, and an ECGI Research Member. 

Laura T. Starks is the George Kozmetsky Centennial University Distinguished Chair at the McCombs School of Business, University of Texas at Austin, and an ECGI Fellow and Research Member. 

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