Stephen Gates

Global drivers of and local resistance to french shareholder activism

Minority investors are gaining greater shareholder protection in France, a civil law country with a strong coordinated market economy (CME), due to the evolution of institutional and legal contexts. We demonstrated how this occurred over time with special attention to the development of foreign investors and the consequent improvments in corporate governance and shareholder democracy in France. However, in CMEs there are national limits to this global convergence to improved minority investor protection. By highlighting the distinctive role of French legal investor associations; by emphasizing the roles of new actors in shareholder democracy, namely proxy advisers, hedge funds, and SRI funds; and by focusing on the responses of local French actors, we illustrated how the tension between shareholders and stakeholders raises the unanticipated costs of shareholder activism. We illustrated through several case examples of explicit and evasive reactions to shareholder activism how the French government, business elites and unions respond to these global trends. We concluded that France is a hybrid model where shareholder activism is more unpredictable in CMEs due to stakeholder resistance. Our research provided an in-depth investigation of how shareholder activism performs outside liberal market economies with common law. After reading our paper, financial practitioners and investors would understand better the limits to exercising the rights attached to the shares that they acquire in French companies, and more broadly, outside commom law countries. They would assess more carefully the risks from stakeholders in CMEs, thereby enabling them to seek additional strategies to protect their minority shareholder investments.