Shareholder Activism and Corporate Political Activity: A Governance Systems Perspective

Research documents that firms targeted by financially motivated shareholder activists often reduce spending in areas with uncertain or delayed payoffs. Yet, it is unclear whether this pattern extends to corporate political activity (CPA), particularly lobbying—an investment that is relatively inexpensive and can generate substantial benefits in the short run. We investigate how governance conditions shape the influence of block-holding activism on firm lobbying expenditures. Drawing on an emerging systems perspective on shareholder activism, we theorize how boards (as capability providers) and nonactivist shareholders (as sources of support) shape firms’ lobbying behavior amid shareholder activism. Using panel data on 4,991 U.S. public firms, we find that the influence of block-holding activism on lobbying depends on the governance context; firms with more political directors and greater ownership by lobbying-active shareholders sustain their lobbying following activism, whereas firms without these governance features reduce it. The influence of political directors is amplified when they have greater bandwidth, and the influence of lobbying-active shareholders is strengthened when they have held their positions longer. Our study contributes to CPA research by demonstrating that governance systems determine how activism shapes firms’ political strategies and extends the systems perspective on activism into nonmarket domains of strategy.

Funding: M. R. DesJardine acknowledges research support from The Wharton School’s Impact, Value, and Sustainable Business Initiative. W. Shi acknowledges financial support from the University of Miami Provost Research Award. Z. Sun acknowledges financial support from the National Natural Science Foundation of China [Grant 72502157] as well as the Humanities and Social Science Foundation of the Ministry of Education of China [Grant 24YJC630189].

Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2024.19974.