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Collective action by investors leads to better governance: Rotman study

May 25, 2015

Toronto – When institutional investors join forces to push for change, the companies they target take notice.

Researchers from the University of Toronto's Rotman School of Management looked at the track record of the Canadian Coalition for Good Governance, a group of leading Canadian institutional investors, formed in 2002.

With unprecedented access into private correspondence between the coalition and targeted companies, the researchers found the venture resulted in significant strides in three key governance reform areas between 2005 and 2013.

"It's a unique look into the inner workings of a real collective action organization which very few, if anyone, have had," said researcher Craig Doidge. The associate professor of finance co-wrote the paper with Prof. Alexander Dyck, who holds the Professorship in Corporate Governance at the Rotman School, and two former doctoral students, Hamed Mahmudi and Aazam Virani.

When targeted by the CCGG's campaign, firms were 17% more likely to adopt policies requiring a majority of shareholders to approve uncontested candidates for director positions, even controlling for other possible causes.  They were 22% more likely to adopt recommended improvements to executive compensation policies, such as bonus claw backs for underperformance and pension caps, and 11% more likely to accept policies giving shareholders a say on C-suite remuneration.

The coalition exerted pressure through letter campaigns and face-to-face meetings with individual directors.

There was a ripple effect to the coalition's success too. Besides reforming a good chunk of targeted companies, the research found an upswing in governance reform at other companies with directors who were either simultaneously or previously on boards that had been the subject of coalition pressure.

"Collectively the CCGG is big -- typically they had about 15% to 20% of the vote -- and that gets the attention of the [targeted] firm's board," said Prof. Doidge. The coalition's impact was also likely helped by the fact it had a reputation for being credible, pressed its campaign behind-the-scenes, rather than publicly, and coalition members often had social relationships with directors of targeted companies, the paper said.

The CCGG's effectiveness could be replicated elsewhere, suggested the authors. However, it remains to be seen whether such a coalition can continue to work in an increasingly globalized investment world.  Collective voting strength may be diluted when local investors move towards foreign markets, while foreign investors may not yet have developed the local trust necessary for group cohesion or the social relationships that help reinforce its campaign message.

The paper was funded by the Rotman International Centre for Pension Management.

The complete study is available at:

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The Rotman International Centre for Pension Management is a global, research-based network of pension delivery organizations that stimulates leading-edge thinking and practice about pension design and management.Rotman ICPM involves 37 of the world’s leading pension organizations that have joined as its Research Partners. It organizes interactive Discussion Forums for practitioners and researchers, and funds objective and transformative research to support effective management in pension and investment organizations. With its partner, the Rotman School of Management, ICPM delivers the globe’s leading pension governance education program – the Board Effectiveness Program – for board members of international pension and other long-horizon investment institutions. Further details on the Centre are available at

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