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Proxy reforms shifting more power to shareholders can mitigate managerial agency problems but also empowers “special interest” activists. Labor union and public pension funds, the most prolific institutional activists employing low-cost targeting methods, are often accused of pursuing private benefits. The labor and finance literature finds that workers and the unions representing them as stakeholders of the firm, are not aligned with shareholders.

Thus, an activist who is also a stakeholder of the targeted firm has a potential conflict of interest. We find evidence the director labor market can selectively mitigate the negative influence that conflicted activists have over firms, especially when directors are younger and have greater career concerns, without stifling all influence of low-cost activists.

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