Scholars examine the impact of collective action performed by CCGG investors

Scholars from the University Toronto and the University of Oklahoma published an article on the impact of collective actions coordinated by investors that are members of a coalition of Canadian companies.
The research analyzes measures of collective action that can increase the power of institutional investors, and allow them to have a significant role influencing governance decisions from a wide range of companies. Craig Doidge, Alexander Dyck, Hamed Mahmudi, and Aazam Virani examine the Canadian model delineated by the Canadian Coalition for Good Governance (CCGG) — Coalition that brings together into a single organization several of the largest institutional owners of Canadian equities.
Specialized in three core issues of corporate governance, majority voting for directors, say on pay, and compensation structure and disclosure, the CCGG recognizes the free rider problem and potential litigation risks as the main challenges to good governance practices, and it adopts three endeavors (i.e., strategies) to overcome such challenges: the work in the policy arena to coordinate investors’ efforts to influence rules and regulations, public disclosure of its guidelines for Canadian citizens and businesses, and the engagement with company chairs, CEOs, and corporate secretaries “to promote good corporate governance policies and practices.” In addition, the formula “measurement + best practices + exposure = board behavioral change” summarizes CCGG’s board’s framework.
Doidge et al.’s empirical study statistically analyzed three sample groups. The first focused on majority voting, the second on adoption rates of say on pay, and the third focused on the governance of engaged firms. The results showed that, for the first group, “CCGG engagement ha[d] a statistically significant and economically meaningful impact on the likelihood of subsequent adoption of majority voting.” For the second group, adoption rates of say on pay for firms engaged at CCGG are significantly higher. As for the third group, CCGG had a statistically significant impact on the governance of member-firms.
The scholars also observed two limitations of the coalition: a lower impact on controlled corporations and an emphasis on governance mechanisms different from activist hedge funds.
For more information, click here to access the article.