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A rock or a soft place?
Taking care: companies make love and money (if
their shareholders let them)
Here are three things that you don’t often see together: caring for
the community and the environment; shareholder value orien-
tation; and takeover protection mechanisms. Surely they can’t
have much to do with one another, can they?
Well, they have quite a bit to do with one another, or so it
appears. Let me explain.
First of all, do we like it that rms can adopt takeover protection
mechanisms (such as poison pill constructions)? “No, we don’t!”
shareholders proclaim in chorus, because the threat of a potential
takeover is a great way to make sure that CEOs don’t do anything
that does not maximize value for shareholders. Remove that
possibility and these bloody CEOs will do all sorts of silly things
that are not in our best interest.
And I am afraid that is at least half-true . . . And one of these
silly things is attending to issues such as caring for the natural
environment and the community. We – the wider public – may
like it if corporations do that kind of stuff, but it is not clear that
shareholders do; after all, caring for such soft stuff comes at the
cost of the hard stuff: cash.
Aleksandra Kacperczyk from the University of Michigan
examined this issue in a clever way. She examined 878 public
rms in Delaware between 1991 and 2002. The interesting
thing about Delaware is that in the mid-1990s, due to a series
of court decisions, hostile takeovers suddenly became a lot
more difcult. And what Aleksandra found is that, after that
fact, Delaware companies started to pay a lot more attention
to caring for the community and the natural environment.
All of a sudden, it was safe for companies to do such things,
without the threat of punishment hanging over them, by
means of a hostile takeover by another company that thought
it could make more money by getting rid of all that expensive
soft stuff.