Shaping CEOs’ future focus through shareholder activism: the role of proposal characteristics

Research on the outcomes of shareholder activism has gained momentum among management scholars in recent years. However, studies focusing on the way shareholder activists affect top managers’ cognition are still in its infancy. Thus, this study examines the relationship between shareholder activism and chief executive officers’ (CEOs’) future focus on the basis of signaling theory. By applying a contingency view and considering various characteristics of proposals by activists as pivotal moderators, it intends to reveal the conditions under which activists stimulate CEOs’ future focus. Empirical analyses not only confirm that shareholder activism shapes CEOs’ future focus but also reveal that this effect is stronger when shareholder proposals are written in an analytical and powerful tone, contain more adverbs and verbs, and trigger CEOs’ cognition by highlighting negativity. Conversely, more self-related proposals reduce activists’ positive impact. Supplemental analyses indicate that the relationship between shareholder activism and CEOs’ future focus may vary under the different characteristics of the boards of directors. Generally, the study provides an innovative and more ‘humanized’ perspective on the literature being among the first to examine the impact of shareholder activism on CEOs’ future focus based on signaling theory. By exploring communication characteristics, the study also applies a relatively novel lens in management research. Moreover, it offers valuable practical implications for shareholders (proposals as effective means to increase interest alignment between shareholders and top-level executives), CEOs (proposals as an impetus to become more aware of future events), and boards of directors (proposals as an important governance tool).