A Queen’s University business law professor aims to shed light on the process and effectiveness of shareholder engagement with the help of a federal government grant announced earlier this week.
Professor Mohamed F. Khimji, the David Allgood Professor of Business Law at Queen’s University, has won a Social Sciences and Humanities Research Council Insight Grant as principal investigator for the project Shareholder Democracy in Public Corporations — An Empirical and Economic Analysis.
The grant will provide funding of $155,305 over five years. Prof. Khimji’s co-investigator under the grant is Prof. Christopher C. Nicholls, the W. Geoff Beattie chair in Corporate Law at Western University.
Shareholder democracy is “very much a key issue right now, in terms of regulation and corporate governance,” Prof. Khimji told Legal Feeds. The findings of his research, he says, “will have an impact on the extent to which we should be encouraging shareholder engagement, and what kind of engagement should we be encouraging?”
Law reform initiatives over the past couple of decades have “been about trying to enhance and incentivize more shareholder engagement,” Khimji says. “But not everyone agrees that that’s ultimately good for the governance of public corporations.”
The study will test different views about shareholder democracy, or engagement, by collecting data. The first two years will be spent collecting and analyzing interview data.
“We’ll interview key stakeholders in shareholder voting systems,” Khimji says, such as managers of targets that have been subject to shareholder engagement, shareholders who engage with corporate governance, proxy advisors, and regulators. The project’s aim is to understand the infrastructure of the shareholder voting system, and also the process of the shareholder engagement.
“Many people in Canada will say that the culture in Canada is for shareholders to engage behind the scenes, and not do anything in public,” he notes. Given that, the only way to learn how shareholder engagement works is to interview the key participants in any given instance, he says, and to that end he and his co-investigator will be interviewing shareholders, managers and regulators as well as third-party service providers such as proxy advisory firms.
The second two years will involve collecting and analyzing the quantitative data.
There are various legal mechanisms that shareholders can use to engage in corporate governance, and there would be publicly available information about that, he says.
“The idea is to collect that information and try and understand the extent, the types, and the effectiveness of shareholder engagement using these legal mechanisms. We want the data on the types, the number, and also the effectiveness: whether they have an impact on corporate decision- and policy-making.
The difficulty at the present juncture, says Khimji, is that “we make a lot of law reform and policy decisions based on intuition and anecdotal evidence. The idea is to try and gather more evidence in a scientific way so that law enforcement and policy making going forward is more informed.”
Khimji notes the plurality of corporate constituencies in Canada, including company managers, shareholders, employees, creditors, and society in general. Managers of corporations should be accountable, of course; “but at the same time, one of the key advantages of centralized management is that they function to aggregate different preferences.
“What we don’t want is a corporate governance regime that because of shareholder engagement only favours certain preferences over others, at the expense of others,” he stresses.
“The findings will give us a sense of the process of shareholder engagement — we know very little about the process — and we also know very little about the effects of shareholder engagement. So, the empirical evidence will shed light on both those things.”