Actively exercising your rights as a shareholder. The two main ways to do this are voting at shareholder meetings and engaging – having an active dialogue – with investee companies.
Active shareholders discuss environmental, social or corporate governance concerns with the company in which they invest, in order to preserve long-term shareholder value and enhance long-term returns. They can be very effective in influencing companies’ behavior, especially when they cooperate with other shareholders.
Voting and engagement are two tools that, when combined, can strengthen each other. A long-standing relationship resulting from a multi-year engagement process inspires trust. Voting then becomes much more than simply casting a vote, and evolves into an important element in an ongoing mutual exchange of views.
There is not as much academic literature on active ownership as there is on other sustainable investment topics because there isn’t much historical voting information yet, and data on engagement is often confidential. However, there are studies that have investigated the relationship between active ownership and financial performance.
In ‘Active Ownership’ (2013), Dimson, Karakaş and Li analyze engagements with US public companies in the period 1999-2009. During the year after an initial engagement, they observe an abnormal return on the company’s stocks of +1.8% on average. For successful engagements, the abnormal return is +4.4%, while there is no market reaction to unsuccessful ones. After successful engagements, companies experience improvements in operating performance, profitability, efficiency and governance.