Corporate Governance

Public Pension Plans, Labor Unions, and the Benefits of Shareholder Activism (Continued)

By J. Robert Brown

Institutional investors (including union pension plans) achieve fewer dismissals and greater settlement amounts.  What else?  According to Institutional Monitoring Through Shareholder Litigation, they also generate improvements in governance.  As the study notes: 

• The changes in audit committee independence exhibit similar patterns. Firms with institutional lead plaintiffs experience a significantly higher increase in audit committee independence than firms with individual lead plaintiffs. We also find that, after lawsuit filings, defendant firms with institutional lead plaintiffs are more likely to establish a lead director position than defendant firms with individual lead plaintiffs.

In short, companies that confront pension plans as lead plaintiffs are going to have to pay more and institute better governance.   The data suggests the need for more not less institutional involvement in the shareholder litigation process. 

Full post as published by The Race to the Bottom on September 02, 2009 (boomark / email).