Conflict and Consensus - how shareholders and managers resolve their differences

Understanding the interactional mechanisms that enable parties in shareholder dialogue to manage the tension between conflict and consensus.

Shareholder engagement is an ever growing phenomenon, in part due to greater interest in responsible investing.

Empirical studies of engagement have shown that it can have positive consequences for shareholder value. Yet the question of what makes for effective engagement – that is, engagement that leads to the mutually satisfactory resolution of a contested issue – remains relatively unexplored.

Given the lack of publicly available data for closed-door engagement processes, our ability to understand the role of deliberation in private dialogue is limited, and so is our understanding of how shareholders and corporate managers can overcome junctures of conflict. Therefore, an empirical as well as a theoretical account of how private dialogue can make a difference in the engagement process is desirable. This is the aim of the research paper The Contingent Role of Conflict: Deliberative Interaction and Disagreement in Shareholder Engagement.

It adopts the premise that the face-to-face encounters through which private dialogue occurs matter as much as structural factors. It conceives shareholder engagement as a deliberative three-stage process (establishing dialogue, solution development, solution implementation), with engagement progress defined as the advancement from an earlier to a later stage. Two key interaction dimensions. deliberative interaction and disagreement, are proposed to explain why some dialogues progress while others stall. The research develops hypotheses on how these dimensions affect dialogue at different stages of the process, and.tests these with a unique proprietary dataset of 169 ESG engagements of one asset manager with US public companies over the period 2007–2012.

The researchers find that while deliberative interaction per se does not significantly increase the likelihood of advancement in shareholder engagement, it mitigates the effect of voicing disagreement in the solution-development stage.

By contrast, in the solution-implementation stage, deliberative interaction amplifies the negative effect of disagreement, thus hindering progress in the engagement.

These results suggest that deliberativeness contributes to make upfront disagreement potentially conducive to the development of solutions, while protracted disagreement erodes the progress already made, hampering dialogue progress, and undermining the implementation of mutually agreed solutions and the successful completion of the engagement.

Taken together, the findings contribute to the shareholder engagement literature, deliberative theory, and interactionist organisation theory by outlining how certain combinations of conflict and collaboration advance deliberation.

The accepted version of the paper The Contingent Role of Conflict: Deliberative Interaction and Disagreement in Shareholder Engagement can be downloaded at City Research Online.