Tense boardroom meeting with symbolic puppet strings.

Director's Dilemma: Can Strong Governance Tame 'Special Interest' Activists?

Samir D’Costa in Business & Economy August 2025 • 4 min read.

"New research reveals how corporate governance and labor dynamics influence the labor market for directors, shaping boardroom decisions and shareholder activism."

The rise of shareholder activism, particularly from labor union and public pension funds, has sparked debate about whether these activists are genuinely working in the best interest of all shareholders or pushing their own agendas. Critics worry that granting more power to these groups through low-cost tactics like proxy proposals could allow them to exert undue influence over firms for private gain.

On the other hand, some argue that corporate CEOs, who are often the loudest critics of labor union and public pension fund activism, may simply be trying to discredit these groups to protect themselves from increased monitoring by shareholders. Low-cost activism provides a crucial avenue for shareholders of large U.S. corporations to influence management, so policies designed to curb ‘special interest’ activism could inadvertently worsen managerial agency problems.

For example, consider proposed legislation in Congress that would dramatically increase the ownership stake required for sponsoring shareholder proposals. While this might deter activists with ulterior motives, it could also stifle valuable input from other shareholders. This article explores whether existing corporate governance mechanisms can selectively address the concerns raised by special interest activists without undermining the rights of all shareholders.

Decoding 'Special Interests': When Stakeholders and Shareholders Collide

Tense boardroom meeting with symbolic puppet strings.

To understand the impact of shareholder activism, it’s crucial to differentiate between the types of interests at play. This research focuses on instances where shareholder activists have potential conflicts of interest, specifically when labor union pension funds (LUPFs) sponsor shareholder proposals at firms where they also represent workers under collective bargaining agreements. These are classified as 'conflicted activists.'

In contrast, LUPF activists targeting non-unionized firms and public pension fund (PPF) activists without private-sector worker representation are considered 'non-conflicted activists.' This distinction is important because labor and finance literature suggests that workers and their unions often have interests that diverge from those of shareholders.

The Conflicted Activist: Labor union pension funds targeting firms where they also represent workers.
The Non-Conflicted Activist: LUPFs targeting non-union firms and public pension funds.
The Shareholder Perspective: Prioritizing returns and long-term firm value.
The Stakeholder Perspective: Prioritizing worker benefits and job security.

Strong corporate governance can mitigate the influence of stakeholders whose interests may not align with shareholders. For instance, studies show that stakeholder influence is less pronounced when there are strong investor protections or when managerial ownership is high. This raises the question: Can the labor market for directors serve as a corporate governance mechanism to address the 'conflicted activist' problem?

Striking a Balance: Governance in the Age of Activism

As boards and shareholders vie for influence, it’s easy for each side to discredit the other. However, research shows that an existing governance mechanism—the labor market for directors—can selectively mitigate the potential negative influence of conflicted activists. Directors who cave to pressure from these activists and offer union concessions face significant losses in directorships, while those who resist are not penalized. This suggests that concerns over empowering shareholders may be overblown and that clawing back shareholder power could worsen governance, especially in poorly governed firms.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.1017/s0022109018001217, Alternate LINK

Title: Can Strong Corporate Governance Selectively Mitigate The Negative Influence Of “Special Interest” Shareholder Activists? Evidence From The Labor Market For Directors

Subject: Economics and Econometrics

Journal: Journal of Financial and Quantitative Analysis

Publisher: Cambridge University Press (CUP)

Authors: Diane Del Guercio, Tracie Woidtke

Published: 2018-10-08

Everything You Need To Know

What is the central debate surrounding shareholder activism by labor unions and public pension funds?

The core debate questions whether shareholder activism enacted by labor union pension funds and public pension funds truly serves the best interests of all shareholders or if it primarily advances their own specific agendas. Critics are concerned that tactics like proxy proposals could give these groups excessive influence over companies, potentially leading to decisions that benefit them at the expense of overall firm value. On the other hand, supporters argue that these actions provide a crucial mechanism for shareholders to hold management accountable, particularly in large U.S. corporations.

How does the research differentiate between different types of shareholder activists, and why is this distinction important?

This research distinguishes between 'conflicted activists' and 'non-conflicted activists'. 'Conflicted activists' are labor union pension funds that sponsor shareholder proposals in companies where they also represent workers under collective bargaining agreements. 'Non-conflicted activists' include labor union pension funds targeting non-unionized firms and public pension funds without private-sector worker representation. This distinction is important because the interests of workers and unions may not always align with those of shareholders, potentially leading to conflicts of interest when 'conflicted activists' exert influence.

How can strong corporate governance help in situations where shareholder activists might have conflicting interests?

Strong corporate governance can act as a mechanism to mitigate the influence of stakeholders, including shareholder activists, whose interests may not be fully aligned with those of shareholders. For example, robust investor protections and high managerial ownership can reduce the impact of stakeholder influence. The labor market for directors also plays a role; directors who make union concessions under pressure from 'conflicted activists' may face negative consequences in terms of directorship opportunities.

What role does the labor market for directors play in addressing the issue of 'conflicted activists'?

The labor market for directors serves as a corporate governance mechanism that can selectively mitigate the potential negative influence of 'conflicted activists'. Research suggests that directors who yield to pressure from these activists and make concessions to unions face losses in directorships. Conversely, directors who resist such pressure do not experience similar penalties. This indicates that the labor market for directors helps to hold directors accountable for decisions made in response to shareholder activism.

What are the potential consequences of policies aimed at curbing 'special interest' shareholder activism?

Policies designed to curb 'special interest' shareholder activism, such as increasing the ownership stake required for sponsoring shareholder proposals, may have unintended consequences. While such policies might deter activists with ulterior motives, they could also stifle valuable input from other shareholders and worsen managerial agency problems, particularly in poorly governed firms. It is important to carefully consider the balance between addressing the concerns raised by 'special interest' activists and preserving the rights of all shareholders to influence corporate decisions.