Shareholders’ Role in Times of Corporate Disruptions

An effective corporate governance model rests on the delegation of power from shareholders to boards and executives. In strong delegation cases, the governance debate is mostly focused on board structure, composition, and practices of the board of directors. The board is the fulcrum of a good model of corporate governance, but shareholders also play a very relevant role in supporting it. 

Technology, economic and geopolitical disruptions raise new challenges to governance effectiveness. In this context, most companies need to adopt strategic decisions and allocate additional resources to speed up their transformation. A critical question is how effective different types of shareholders are to support companies in their necessary evolution, not only as providers of capital. In many cases, this goal requires large volume, long-term investment in areas such as decarbonization, developing more resilient global supply chains for a more fragmented world, and adopting artificial intelligence. Boards need to gain shareholders' support for these policies.

The changing role of key shareholders (family offices, large asset managers, foundations, private equity firms and, more recently, governments) over the past two decades has become a relevant development for capital markets and the funding of innovation and investment. Many of those shareholders are considering how they can develop new competencies and become more responsible owners.

In addition, there is political disruption. Polarized views have emerged about environmental, social, and governance (ESG) issues. The "Friedman doctrine" that it is the social responsibility of boards to maximize shareholder value relies on governments to regulate, supervise, and enforce the law. In the view of many economists, it is not the task of companies to internalize externalities. This task is to be left to regulators. In the last months, important government agencies have been defunded or cut down, accentuating differences in opinion about fundamental questions, like energy security and climate policies.

The 2025 IESE ECGI Corporate Governance Conference addressed some issues on the role and impact of shareholders on governance and on some corporate strategic decisions.

Some key reflections mostly based on empirical evidence emerged during the Conference’s sessions. The first is on the role of shareholders in endorsing a corporate purpose. As Colin Mayer argued in his presentation, corporate purpose can play a role in this process and help firms restore and improve their reputation. In family business, corporate purpose grows out of some ideas of the founder. In more mature companies, purpose may emerge from the ideas that CEOs have about how to make their firm unique. 

A good purpose highlights how the firm plans to serve customers differently, and the type of social needs related to the products and services that it offers. A functional purpose should connect with the firm’s strategy, business model and policies. To do so effectively, purpose needs to have the support of the firm’s shareholders. 

A second reflection emerged from Mireia Giné’s papers examining the evidence of institutional investors’ impact on corporate governance and how this impact is conditioned by the growing presence of common ownership. Asset managers have a fiduciary duty to their final investors, not to the companies that they invest in. The institutional investors’ underinvestment in corporate governance is a salient feature of this model and presents some challenges for shareholders themselves and the companies. In her presentation, Mireia Giné highlighted two pathways that institutional shareholders can use to influence the firm’s governance: internal mechanisms such as board composition, compensation and voting; and an external mechanism through M&A. Mireia Giné also discussed how sustainable this model of governance may be when companies face critical challenges or the board needs to support dramatic changes, such as M&A decisions.

Jill Fisch’s paper and presentation on the role of public pension funds highlighted some qualities of this type of owner. They are very relevant investors and their role as shareholders is evolving. Jill’s thesis is that public pension funds are principals, not agents, and can pursue goals beyond the fund economic value. Nevertheless, she also pointed out the risks of some investment policies that may exacerbate pension funds’ underfunding or make pension funds more political.

Marco Becht’s paper and presentation on voice through divestment assesses fossil fuel divestment decisions. In this context, divestment is a statement of disapproval that aligns actions with words for effectiveness. Becht and his co-authors discuss the effects of the Go Fossil Free divestment campaigns and how viral divestment pledges reduce share prices of all carbon emitters, including those that do not announce divestments. The authors argue that divestment announcements that “resonate” increase regulatory and other forms of transition risk. Thus “viral” divestment announcements reposition divestment decisions from a moral statement to strategic risk management.

The evolving landscape on firms’ social policies - in particular, on diversity - and shareholders support for them is a relevant question. Luc Renneboog presented a paper that explores in a comprehensive way how much support policies promoting diversity get from shareholders, employees, consumers and boards of directors, among others. The overall support of these policies from different stakeholders is rather limited. At a time of changing political and social perspectives on this issue, the evidence provided by Luc’s paper is very timely.

Xavier Vives examined in his paper the challenge that alliances on decarbonization or commitment to net-zero emissions by groups of investors face from anti-trust authorities. The growing number of anti-trust cases in US courts and the political backlash against some large investors and members of those alliances are changing investors’ expectations about those alliances. Xavier Vives presented a model that assesses the case for antitrust concerns. He also discussed the conditions under which firm cooperation and common ownership can speed up green investment under certain conditions.

The final CEOs panel offered many insights on what shareholders can do to improve the quality of governance and support companies in disruptive times. Shareholders have many tools to make sure that the board is performing well and takes care of the firm. Boards’ proposals to shareholders, in particular, those regarding board composition and nomination of board members, and CEO and senior executives’ compensation are critical. Shareholders should have a point of view about them and should make sure that the board fulfills professionally their governance functions. Moreover, ordinary shareholders - in particular, institutional shareholders - should not wait for the arrival of an activist hedge fund to engage with the board on relevant issues. 

A clear insight is that shareholders’ time horizons should be compatible with the company’s time horizons, in particular, with the company’s investment plans. By definition, each shareholder and each company - even in the same industry - have different time horizons. Responsible investors should make sure that their plans and horizons are compatible with what the company needs to achieve. The potential misalignment along this dimension will distort expectations and can have terrible effects on companies and investors alike.

As the competitive landscape for companies around the world gets more complex, a more effective governance model supported by shareholders is required. Investors should use their decision-making power to make companies more resilient and competitive, and engines of economic prosperity.

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By Jordi Canals (IESE Business School)

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