Abstract.
This study contributes to the neglected field of research concerning owners and strategic choices like innovation. This neglected field in today’s academic research is clearly stated by Talke, Salomo and Rost (2010) in their study on corporate governance and strategic
orientation. This study investigates whether shareholder activism changes the level of
Research and Development (R&D) intensity of Dutch stock listed firms at the AEX, between 2008 and 2011. More specifically, this study will look at the expressed shareholder activism at Annual General Meetings of Shareholders and investigates whether this influences the R&D intensity of the firm and the R&D orientation of boards in the upcoming years. In the past literature of corporate governance, strategic orientation is concentrated in the hands of managers. More recent studies have included ownership based on the rise of concentrated ownership and the definition of corporate governance: “Corporate governance relies on characteristics of owners and board structures aiming at aligning the interests of
stakeholders”. Based on these findings, La Porta, Lopez-De-Silanes and Shleifer (1999) state that control, at least partly, is shifting from managers towards shareholders.
The results of this study show that positive shareholder activism has an effect on a firm’s level of innovation and partly explains the strategic orientation of boards, since the
educational level diversity was more positively correlated with R&D intensity when implementing positive shareholder activism.
As a conclusion, this study partly confirms the past literature that strategic orientation is concentrated in the hands of managers, but it contributes to this by stating that shareholders nowadays codetermine the course of action concerning R&D investments.
Keywords: Innovation, boards, shareholders, activism, diversity, R&D, intensity, tenure,
education, strategic, entrepreneurial.
Table of content.
Abstract. ... 2
1. Introduction. ... 5
2. Theoretical background and hypothesis. ... 7
2.1 The shareholder. ... 7
2.2 The board. ... 11
2.2.1 Homogeneity versus heterogeneity. ... 12
2.3 The influence of shareholders on board orientation. ... 14
3. Data and methodology. ... 16
3.1 Data. ... 16
3.2 Initial sample. ... 17
3.3 Variables. ... 17
3.3.1 Innovation. ... 17
3.3.2 Shareholder activism. ... 18
3.3.3 Board diversity. ... 21
3.3.4 Control. ... 22
3.4 Analysis. ... 24
4. Results. ... 26
4.1 Sample data. ... 26
4.1.1 Independent variables. ... 26
4.1.2 Dependent variable. ... 30
4.2 Pearson correlation. ... 30
4.3 Linear regression analyses. ... 34
5. Discussion and conclusion. ... 37
5.1 Limitations and future research. ... 39
5.2 Acknowledgment. ... 41
References. ... 42
Appendices. ... 48
Appendix 1: Firms and their amount of board members. ... 48
Appendix 2: Industries. ... 50
1. Introduction.
What is innovation? Innovation is the multi-stage process whereby organizations transform ideas into new/improved products, service or processes in order to advance, compete and differentiate themselves successfully in their marketplace (Baregheh, Rowley and Sambrook, 2009). Well known innovations contain examples like the light bulb by Thomas Edison, the first car by Henry Ford or the recent developments by Apple like the IPad, IPhone or IWatch.
But to be able to launch such an innovation, time, investments and commitment by the firm is needed.
But which factors of governance influence a firm’s commitment to innovation? Is it chief executive officer (CEO) Tim Cook for Apple? Is it the executive board of Phillips who determines their high innovativeness? Or is it BlackRock, one of the largest shareholders of Google, who influences Google’s commitment to innovation?
Berle and Means (1969) state that control of strategic orientation is concentrated in the hands of the board. But commitment by shareholders like BlackRock is a growing
phenomenon, described as shareholder activism in the academic literature. The most common definition of a shareholder activist is an investor who tries to change the status quo through
“voice”, without a change in control of the firm (Gillan and Starks, 1998). This corresponds to the various actions undertaken by investors to influence corporate change or financial
outcomes (Chung and Talaulicer, 2010). In the United States of America (U.S.) shareholder empowerment has been a prominent subject on the agenda. Several committees have reported that enhanced shareholder rights provide accountability and that means lower agency costs, higher market prices and a more competitive equity marketplace (Bratton and Wachter, 2010).
Shareholder activism is rarely proposed in the European context. Cziraki, Renneboog and Szilagyi (2010) state that a survey by McCahery, Sautner and Starks has shown that types of corrective actions by most Dutch investors include voting against the company and initiating discussions with the executive board at AGMs. This suggests that shareholders use a wide range of measures to impact the firm’s decisions.
This study contributes to the existing literature by investigating the influence of
shareholders on Research and Development (R&D) investments of publicly traded Dutch
firms by looking at their activism towards innovation, shown at annual general meetings of
shareholders (AGMs). This study is based on the upper echelons theory but the theoretical
arguments are traditionally rooted in agency theory assumptions as a company’s investments
in R&D is a decision that may induce manager-shareholder conflicts (Honoré, Munari and La
Potterie, 2015). More specifically, I will investigate how shareholder activism changes R&D intensity. I will do this by investigating a direct and indirect impact. The direct impact
contains the effect that shareholder activism has on R&D intensity. The indirect effect investigates whether this shareholder activism influences the strategic orientation of boards.
To detect this indirect effect, this study will firstly investigate the effect of board diversity on R&D intensity and later implement shareholder activism to detect the moderating effect on this strategic orientation. I have chosen for board diversity since diversity of attributes like educational background and tenure enrich the supply of ideas, unique approaches, and knowledge available to a unit. This increases the possibility of R&D investments.
The emerging literature on corporate governance (CG) discusses different issues ranging from codes of conduct and the role of the non-executive director up to board failure and interaction. These topics share a strong focus on compliance issues and interrelationships but fail to connect the control of owners and boards to the firm’s strategic orientation which can be R&D investments (van der Walt, Ingley and Diack, 2001). CG relies on characteristics of
“owners and board structures” aiming at aligning the interest of stakeholders. But in the past literature, strategic orientation is placed in the hands of the boards due to widely dispersed ownership (Auh and Menguc, 2005; Camelo, Frernandez-Alles and Hernandez, 2010;
Musteen, Barker and Baeten, 2010; Berle and Means, 1969). This indicates that shareholders do not have the intention or time to control which leaves managers with more freedom. Talke, Salomo and Rost (2010) have investigated the role of corporate governance issues on
strategic choice like innovation and they clearly stated that investigating the role of owners is a neglected field of research in today’s academic literature. They stated that recent studies namely disagree with this concentration of control based on the growing percentages of concentrated ownership in rich and developing countries. An example of concentrated ownership is the U.S. where the amount of firms with a majority shareholder is exceeding 51%. Based on these findings La Porta, Lopez-De-Silanes and Shleifer (1999) state that control, at least partly, is shifting from managers towards shareholders.
This research is interesting in relation to the management theory since it relates to
governance perspectives. Besides that it explains the circle of influence of shareholders on the orientation of boards in the case of innovation. The relation of board characteristics on
innovation can be used for practical purposes. Firms might be able to control for the
composition of management teams to foster or decrease the level of innovation and identify
the impact of shareholders on R&D expenditures. At the end, the goal of this paper is to
address whether shareholder activism influences the firm’s strategic orientation towards
innovation and whether this moderates the strategic orientation of boards.
The remainder of this paper is structured as follows. Section 2 will summarize the existing literature on corporate governance and innovation, and the effects of shareholder activism and board diversity on R&D intensity. Section 3 will describe the sample, the process of data acquirement and the methodology for the quantitative analysis. Section 4 provides an
overview and interpretation of the results and section 5 provides an overall conclusion and discussion complemented by the identification of areas for future research.
2. Theoretical background and hypothesis.
In the increasingly competitive business environment, innovation is seen as a key factor for both firm survival and performance excellence (Marinova, 2004). Moreover, innovation counts as one of the fundamental growth strategies to enter new markets, increase existing market share and create a competitive edge within the firm (Gunday, Ulusoy, Kilic and Alpkan, 2011). But a focus towards innovation comes with a risk of investments and
uncertainty, leading to dispersed commitment in modern corporations with diffuse ownership structures, known as agency problems. These agency problems may influence investment strategies by the firms. Shareholders are able to diversify their firm-specific risk because they hold a broad portfolio of assets, while the wealth of the board members is directly tied to firm performance (O’Connor and Rafferty, 2012).
Corporate governance relies on characteristics of “owners and board structures” aiming at aligning the interests of stakeholders. This indicates that shareholders codetermine a chosen direction despite their different interests compared to boards. But do they want to determine a strategic direction like innovation? And if so, how do they do this?
2.1 The shareholder.
The shareholder is an owner of the company by capital or equity. The dimension of
ownership by the shareholder is based on the characteristics of shares and the identity of the
owners. Owners can vary from investors, banks and families up to pension funds, institutional
investors and sovereign wealth funds. Shares can vary from ordinary shares, which indicate
one vote per share and equal distribution of dividends, up to non-voting shares in which the
owner participates in the dividends but does not have the right to vote (van Veen, 2015). With
the obtainment of shares comes responsibilities and rights. One of these rights include the
appointment of board members (Gillan and Starks, 1998). These members collaborate in one
of the following structures: a one-tier or a two-tier board (Millet-Reyes and Zhao, 2010). A one-tier board is a unitary board of directors which includes executives and non-executives. In Europe, The United Kingdom (U.K.) traditionally follows this single board system while the Netherlands traditionally follows a two-tier system (Jungmann, 2006). A two-tier system consists of an executive and a supervisory board. Both systems contain strengths and weaknesses. Previous research concerning the efficiency of board structures has mainly focused on the activity of unitary board directors. Most of the studies state that they have found empirical ties between features of a unitary board of directors and firm performance (Millet-Reyes and Zhao, 2010).
Both system contain executives and non-executives and the non-executives control the work of the executives on behalf of the shareholders (Aguilera and Jackson, 2003). This indicates that shareholders are faced with ownership and control. This separation of
ownership and control provides the basis for conflicts between shareholders and the board and these conflicts, agency problems, are the basis for shareholder activism (Gillan and Starks, 1998).
Shareholder activism is a broad phenomenon which corresponds to actions undertaken by shareholders, to influence corporate management and boards in order to enforce company changes (Chung and Talaulicer, 2010). Gillan and Starks (2000), in their paper on the evolution of shareholder activism in the U.S., provide an overview of the evolution of shareholder activism in the U.S. They hereby focus on financial and related governance issues. The authors describe that that the current wave of shareholder activism can be seen as dating from the introduction of a rule in 1942 by the Security Exchange Commission (SEC).
This commission permitted shareholders to submit proposals for inclusion on corporate ballots and has increased intensively in 1985 with the initiation of activism by public pension funds.
The evidence concerning shareholder activism is divided (Chung and Talaulicer, 2010).
Some studies have found significant changes in business activities when companies where targeted by active shareholders, while others have indicated that it is difficult to describe and establish a causal relationship between shareholder activism and changing business activities.
Shareholders might want to enforce changes by corporate management and boards as a
consequence of dissatisfaction, which can be referred to as negative activism. Investors can be
dissatisfied with some of the company’s management or operations. They are able to express
this by simply selling their shares, which is called the Wall Street Walk, or by showing voice
(Gillan and Starks (2000); Chung and Talaulicer, 2010). Showing voice can be done by proxy
proposals at AGMs. These shareholder proposals are rarely mentioned but they do seem to have an impact on business activities. A good example is the takeover of the Dutch Bank ABN-AMRO NV by Barclays PLC in 2007. The Children’s Investment fund (TCI), a shareholder containing over 1% of the shares, demanded that the Dutch bank would either find a buyer or break up itself as a consequence of bad company performance. The main subjects for activism by TCI were a lacking strategy and non-profitable takeovers (Larsen, 2007). Other examples are Daniel Loeb and Carl Icahn. Daniel Loeb, who was holding 5.8%
of Yahoo Stock in 2012 as the owner of Third Point LLC, forced a CEO change and Carl Icahn forced Motorola to split-up in 2011. These examples are situations on which shareholders fared exceedingly well by showing voice at AGMs based on dissatisfaction.
Satisfaction, which can be referred to as positive activism, is also be expressed by
shareholders. This indicates that the shareholder is pleased with the current situation or might even want the firm to proceed more actively in the chosen direction. Satisfaction can be expressed by voting in favour of the re-election of board members. A good example is the Bank of America. In May 2015, the shareholders gave CEO Brian Moynihan a “vote of confidence” by re-electing all of the bank’s directors. This was a way of saying that they are satisfied with the board’s actions despite the hard financial times (Rexrode, 2015).
How is this shareholder activism related to innovation?
Laurence Fink, CEO of BlackRock states that nowadays corporate leaders respond with actions that deliver immediate returns while underinvesting in for example innovation (Monga, Benoit and Francis, 2015). This relates to O’Connor and Rafferty (2012) who state that shareholders are able to diversify their firm-specific risk because they hold a broad
portfolio of assets, while the wealth of the board members is directly tied to firm performance.
Based on this, shareholders should promote CG activities that incentivize managers to maximize the value of their investment (Honoré et al, 2015). This can be done by showing satisfaction when it comes to innovation (positive activism). Gillan and Stark (2000) on the other hand state that the initial motive of shareholders for monitoring company management and boards lies in protecting their investment. Agency conflicts arise when shareholders delegate decision-making to opportunistic managers who have different interests. These differences in perspectives should be managed by the board of directors, but when they fail activism arises. From this perspective one of the main questions is how the shareholders’
interests can be protected from selfish managers who are acting in their own interest (Burg,
van der, 2002). This way shareholders might want to show dissatisfaction (negative activism)
when it comes to innovation.
So, shareholder can express positive and negative activism on innovation. But how does this work? And who has access to the proxy process?
Recent studies in the U.S. have confirmed that submitting proxy proposals exerts pressure on the firms. Despite their nonbinding nature, 40 % of proposals that win a majority vote are implemented. Recent studies show that if the passed proposals are ignored firms are penalised by drawing negative press. Downgrades by governance rating firms and no re-electing of directors are examples of this. Europe has seldom been discussed but the results of a recent survey has shown that selling shares, voting against the company and initiating a discussion with the board are the main types of action by Dutch investors to impact firm decisions (Cziraki et al., 2015).
A key difference between the U.S. and Europe is legal treatment. While in the U.S. passed proposals serve as an advice they are legally binding in the U.K. and most of continental Europe. These European countries have made this legally binding to protect the interest of minority shareholders. Nowadays, these minorities must be provided with access to AGMs and have the right to submit proxy proposals for shareholder vote on legal basis. But this comes with a footnote, since the required voting capital to submit proposals varies
substantially across European countries. The German Stock Corporation Act (Aktiengesetz) states that new agenda items can be set by shareholders who at least own 5% of the voting capital. The Austrian Aktiengesetz is more subtle since submitting proxy proposals only requires 1% of capital, but Norway takes it even a step further. The Norwegian Code of Practise for Corporate Governance states that all shareholders should be informed about their right to propose resolutions in respect of matters to be dealt with by the general meeting (Cziraki et al., 2015).
What does the Dutch proxy process look like?
For all Dutch listed firms count that there should at least be one AGM every year and the
AGM has to be held within 6 months after the end of the financial year (de Jong, Mertens and
Roosenboom, 2006). To be able to submit a proposal in the Netherlands, shareholders should
at least own 1% or share ownership of 50 million euros in market value and the proposals
should be submitted in writing at least 60 days before the AGM. But a footnote has to be
placed next to this. In the Netherlands it is the case that only the boards may propose
resolutions on certain topics. Examples are proposals on amendments of the articles of
association, share issues and subscription rights, asset sales and the dissolution of the firm
itself (Cziraki et al., 2015).
Shareholder activism is on the rise and more is expected to come (Sikavica, 2015). The shift, at least partly, form capital to control indicates that the shareholder is more willing to exert voice (La Porta et al., 1999). Shareholder can exert negative and positive activism when it comes to showing voice towards the firm’s strategic direction. In case of innovation the shareholder might either protect its investment from opportunism or is able to diversify risk.
These findings, together with the fact that Dutch investors are initiating a discussion with the board in case of corrective action, makes me hypothesize:
H1a: There is a positive relationship between positive shareholder activism towards innovation at AGMs and the R&D intensity of the firm.
H1b: There is a negative relationship between negative shareholder activism towards innovation at AGMs and the R&D intensity of the firm.
2.2 The board.
In the strategy literature, the influence of top managers on courses of action is most often related not to one individual person but rather to the entire board. Top managers make decisions consistent with their cognitive frames, which can be a function of their education, functional background, experience, and value (Carpenter, Geletkanycz and Sanders, 2004).
This means that managers are required to make strategic choices and decide where their attention is going. Van Doorn, Jansen, van den Bosch and Volberda (2013) describe this process as entrepreneurial orientation which refers to the strategic posture of firms in terms of risk-taking, innovativeness and pro-activeness. At a certain time these managers are
confronted with more information than they can comprehend and as a way of modelling this overload theorists have adopted a view which implies that managers should engage in an information processing sequence in which attention, interpretation and action are central items (Cho and Hambrick, 2006). The academic literature states that top managers factor in
numerous information sources during this processing process. Environmental information is
one of these sources and it includes munificence, uncertainty, deregulation, competitor’s
commitment to R&D and demographic factors (Daellenbach, McCarthy and Schoenecker,
1999). The last three have empirically been explained as having an influence on the attention
towards innovation, (Cho and Hambrick, 2006; Wu, Chiang and Wiang, 2002; Chen, Ho, Ik
and Lee, 2002). Internal factors is another type and this includes the organization’s ability to
undertake technology initiatives given its current resources, the skill and capability levels
within the organization, previous commitments to R&D, performance and diversification (Daellenbach et al., 1999). Concerning diversification, Auh and Menguc (2005) describe that despite the interest shown by managers in trying to relate this to innovativeness, little
empirical research exists to support the claim that management diversity has an influence on the level of innovativeness. Daellenbach et al. (1999) and Kor (2006) contribute to this little empirical evidence by finding support for the effect of functional background on commitment to innovation and by allocating empirical evidence that tenure of managers is associated negatively with R&D intensity where the strength of the negative effect diminishes with tenure.
But what about the composition of boards? Hambrick and Mason (1984) and Dess and Origer (1987) argue that differences in background may be associated with less strategic consensus and subsequently poorer performance while Barkema and Shvyrkov (2007) state that demographic diversity leads to task conflicts which eventually leads to groups developing new ideas and approaches, known as innovation. Here the authors state that differences in the work-related attributes tenure and education, are likely to surface in debate and become salient in work situations. This leaves us with the question whether diversity in educational level and tenure will diminish innovation or whether it will lead to new ideas and approaches.
2.2.1 Homogeneity versus heterogeneity.
It seems beneficial for a board to be composed of members that all have a relatively high level of education and a long tenure in the firm (Auh and Menguc, 2005). Educational level has been a main driver for dealing with complexity of top managers towards the prediction of innovation (Hambrick and Mason, 1984). Previous studies concluded that higher levels of education are associated with a high degree of cognitive complexity. This complexity is associated with a team’s capacity to confront the uncertainty of the environment and to make decisions to stimulate renewal and change in an organization (Camelo et al., 2010). Besides that a highly educated team is more aware of the need for innovation and change, better able to process more information faster, better able to discriminate among a wider variety of stimuli and signals and capable of rigorously analysing highly complex problems with multiple dimensions.
Organizational tenure of team members is qualified as having the most significant
theoretical footing of all demographic variables (Finkelstein and Hambrick, 1990). Research
has shown that longer tenure within an organization offers opportunities for individuals to be
exposed to areas outside of their field of expertise and knowledge which as a result will
enable more interaction (Auh and Menguc, 2005). Musteen et al. (2010) have investigated the moderating role of CEO tenure concerning the adaption towards change off organizational approaches for innovation. The authors stated that with increased tenure in a top position, experience and task knowledge increases. Longer tenured top managers learn to communicate their intentions to their subordinates more effectively and besides that longer tenure indicates that the top manager is better aware of what is required in the field concerning innovations.
But there is also an opposite perspective concerning this homogeneity. Uniform cognitive structure and mental maps of members with a high level of education might work against the organization by confining and limiting the ability of the team to scan the business landscape for creative and innovative solutions. The similarity in information processing and decision- making obtained from homogeneous training and experience might prevent the organization from realizing innovations. On the other hand, diversity in educational level has been shown to positively affect firm performance based upon the positive interaction of debate (Auh and Menguc, 2005).
When looking at tenure Camelo et al. (2010) describe a perspective based on isolation. The authors point out that time of entry into a group is an important determinant of a person’s communication pattern within it. Long average group tenure results in decreasing levels of overall communication because group members feel they are able to anticipate the viewpoint of other members and increased specialization occurs. This leads to increased isolation with respect to external sources of information. Once people are committed to a course of action, they resist changing their behaviour even if their course of action is not a successful one. This commitment derives from certain psychological risks of change. Senior executives may have struggled for a long period of time to achieve the position they are currently taking. As long- tenured managers they possess more firm-specific knowledge than general human capital and that is how they have been able to capture an established position within the firm. In essence they have far more to lose than to gain by taking unnecessary risk. This may lead to a board that is becoming less receptive to change and innovation (Finkelstein and Hambrick, 1990).
Heterogeneity or diversity can be states as “inter-individual differences in knowledge,
heuristics and perspectives”. Heterogeneous groups are rich in diversity of knowledge,
heuristics and perspectives. They have more tools, insights, and estimates to tackle the
problems assigned to them than homogeneous groups have. In the U.S. alone, firms spend
billions on diversity programs such as recruiting and training (Klein and Harrison, 2007). The
relationship between diversity in cognitive characteristics and innovation is a topic that has
been widely investigated over the years. The theory of upper echelon suggest that board
composition determines the strategy of firms because different cognitive frames of decision makers create different perceptions and thus provide different frames for strategic choices (Talke et al, 2010). Here heterogeneity refers to the degree to which there are differences along demographic, functional, and background dimensions in the composition of a group (Alexiev, Jansen, van den Bosch and Volberda, 2010). This enhances problem solving, judgement and decision making capabilities through team-level processing of unique job- relevant information, team reflexivity, and health task-related conflict. Karen, Bantel and Jackson (1989) have investigated this relationship in the banking industry and the authors concluded that innovativeness is positively correlated with team heterogeneity with respect to age, education and functional experience. Daellenbach et al. (1999) have tried, by
investigating the cognitive base, values and biases of a top management team to answer the question; how might a manager’s education, work experience and background affect his/her decision-making with respect to commitment to innovation? The authors found evidence that the proportion of top managers with work experience in technical areas will be positively related to the firm’s commitment to innovation. Talke et al. (2010) have taken a different perspective by dividing board diversity in relations- and task-oriented executives. The authors found support for the fact that task-oriented board diversity facilitates a firm’s strategic choice to specify and establish innovation fields.
Diversity of attributes such as educational background and tenure enrich the supply of ideas, unique approaches, and knowledge available to a unit. Besides that it enhances unit creativity, quality of decision making and complex performance (Harrison and Klein, 2007) and I therefore hypothesize:
H2a: There is a positive relationship between diversity of educational level of a board and the R&D intensity of the firm
H2b: There is a positive relationship between diversity in tenure of a board and the R&D intensity of the firm.
2.3 The influence of shareholders on board orientation.
Research has shown that board diversity influences the commitment to innovation (Karen et al., 1989; Daellenbach et al., 1999; Talke et al., 2010l; Harrison and Klein, 2007). Based on the definition of corporate governance: “Corporate governance relies on characteristics of
“owners and board structures” aiming at aligning the interests of stakeholders”, it can be
stated that shareholders codetermine strategic orientation. Shareholders have the opportunity to exert shareholder activism at AGMs. This way shareholders try to change the status quo through “voice”, without a change in control of the firm (Gillan and Starks, 1998).
But does shareholder activism also affect the strategic orientation of the board?
The agency theory states that two opposite types of conflicts can occur between managers and shareholder which can have implications for R&D. First, shareholders might delegate
decision-making to opportunistic managers who have different interests. From this
perspective one of the main questions is how the shareholders’ interests can be protected from selfish managers who are acting in their own interest (Burg, van der, 2002). We have referred to this before as dissatisfaction or negative activism. The other type of conflict contains the opposite and describes the ability of diversifying risk by the shareholder, since they hold a broad portfolio of assets (Honoré et al, 2015). This might create positive shareholder activism at AGMs. But shareholders have become increasingly willing to use their ownership to pressure manager to act in the best interest of the shareholder (Cornett, Marcus, Saunders and Tehranian, 2007). Besides that shareholder activism is rising and more is expected to come (Sikavica, 2015). Based on these findings I hypothesize:
H3a: Positive shareholder activism towards innovation at AGMs moderates the relationship between educational diversity of the board and R&D intensity, such that the diversity is more positively associated with R&D intensity as shareholder activism is positive.
H3b: Negative shareholder activism towards innovation at AGMs moderates the relationship between educational diversity of the board and R&D intensity, such that the diversity is more negatively associated with R&D intensity as shareholder activism is negative.
H3c: Positive shareholder activism towards innovation at AGMs moderates the relationship between tenure diversity of the board and R&D intensity, such that the diversity is more positively associated with R&D intensity as shareholder activism is positive
H3d: Negative shareholder activism towards innovation at AGMs moderates the relationship between tenure diversity of the board and R&D intensity, such that the diversity is more negatively associated with R&D intensity as shareholder activism is negative.
Figure 1 gives a clear overview of all hypotheses in a conceptual model.
3. Data and methodology.
3.1 Data.
To be able to test the hypotheses, five types of datasets are needed. First, the database of dr. K. van Veen will be used. Dr. van Veen is a professor of the Faculty of Economics and Business at the university of Groningen and his database provides information about board members of 103 large Dutch firms between 1997 and 2014. It contains data on for instance names, age, gender and nationality. This database provides me with data about the names of board members concerning Dutch firms. While the execution of business processes is mostly done by executives this study will examine all board members since the Netherlands still contains an amount of firms that carry out a one-tier structure from which this separation cannot be detected. Examples are Dutch listed firms like Royal Dutch Shell, ArcelorMittal and Kardan (Peij and Brandjes, 2012).
The data on educational level and tenure has been derived from the databases of
Managementscope.nl and Bloomberg.com. Managementscope.nl provides curricula vitae and profiles of board members of the Dutch listed firms at the Euronext Amsterdam (AEX). The missing data on Managementscope.nl has been complemented by the database of
Bloomberg.com. This database connects board members to networks of information, people and ideas.
Board heterogeneity - Educational background -Tenure
R&D intensity
Figure 1: Conceptual model
Shareholder activism
H2a/b
- - -
H1a/bH3a/b/c/d
+
TMTs, shareholders and innovation
+
+
The fourth dataset will be used to determine the R&D intensity of the firms. This intensity will be measured by using R&D expenditures and total assets and this data will be derived from the database Orbis. This is a database is available at the university of Groningen and provides information about inter alia finance, markets and fusions.
Finally the minutes of AGMs will be used to determine shareholder activism. These minutes were available at the corporate website of the firm or were acquired by contacting the firm by email.
3.2 Initial sample.
The sample will need to satisfy the following criteria. First, the firms need to be publicly traded to encompass shareholder activism. Publicly traded companies are forced to share annual reports and provide minutes of AGMs from which shareholder activism can be derived. This focus is efficient concerning the requirement of data since I am able to collect it by using secondary data sources. Second, the firms need to have exposed innovation
expenses, to be more specific R&D expenditures, and total assets. This is necessary to
determine the variation of expenses when differences in board characteristics and shareholder activism occur. Finally, the firms need to have available data of a sequence of more than one year concerning board characteristics, shareholder activism and R&D expenditures to measure the influence of these variables on R&D commitment.
When applying all the criteria the initial sample consists of 38 Dutch firms publicly traded on the AEX between 2008 and 2011 encompassing 1191 board members and 152 AGM minutes (Appendix 1 gives an overview of all firms and the amount of board members per firm). When we control for board members who are investigated multiple times during the timeframe or have double functions, the initial sample is left with 399 original members.
3.3 Variables.
3.3.1 Innovation.
The dependent variable is innovation which will be measured by using R&D intensity. To
determine the level of innovation the method of Chen and Huang (2006) will be used. The
authors use R&D intensity as a ratio of R&D expenditures and total assets. Since agreed
commitment towards innovation can come to actual R&D expenditures in the upcoming
years, I will make use of a 3-year average R&D intensity as has been used by Daellenbach et
al. (1999). This means that board diversity and shareholder activism in 2008 will be
determined to have an effect on the average R&D intensity of the years 2008, 2009 and 2010, the diversity and activism in 2009 to have an effect on the average R&D intensity of 2009, 2010 and 2011 and so forth up to 2011. This means that the average R&D intensity for year t will be measured by using formula 1.
𝑅
𝑡=
𝑅𝑡+𝑅𝑡+13+𝑅𝑡+2Concerning this equation 𝑅
𝑖indicates R&D intensity and 𝑅
𝑖average R&D intensity where t is the year to be measured.
Based on the existing theory there are several ways to determine innovation. Examples are the equation R&D divided by sales, R&D experience as a part of bank loans in total debt and the number of patents acquired (Honoré et al., 2015). The latter has been widely used in innovations studies in Asian countries but this indicator of innovation comes with limitations:
not all innovations lead to patents since patenting comes with high registration and maintenance costs, not all patent registrations can represent innovation performance, administrative processes for patent applications can differ and patents can only represent codified and explicit technological knowledge (Choi, Lee and Williams, 2011). Besides that high R&D intensity will be identified by the large amount of patents produced when using patents as an indicator, but this amount might contain very basic patents based on recent technologies for which the firm receives many citations. To prevent these firms from dominating the field, I have chosen to use a R&D intensity ratio.
3.3.2 Shareholder activism.
To indicate shareholder activism I will make use of a content analysis that I have
performed based on the paper of Levy (2005). This content analysis is based on five elements on innovation described by Baregheh, Rowley and Sambrook (2009). The elements are:
innovation, research and development (R&D), change, superior and new. I have looked for these elements in the AGM minutes of the sample firms, for the years 2008, 2009, 2010 and 2011. Since the sample contains several Dutch listed firms who reveal the minutes of their AGMs in Dutch, the elements by Baregheh, Rowley and Sambrook (2009) are translated into innovatie, onderzoek en ontwikkeling (R&D), verandering, superieur and nieuw. For
shareholder activism it is necessary to state that I have looked at the described interaction of the boards with the shareholders. A lot of AGM minutes start with a general announcement by
Formula 1: Average R&D intensity
the board concerning the activities of the upcoming year. These announcements may contain R&D expenses but they do not provide (dis) satisfaction by the shareholder. Concerning this study, the interaction with shareholders at AGMs will determine which value will be
attributed to the shareholder since this indicates activism.
The content analysis has revealed statements by shareholders. Based on these statements, I will determine whether shareholders talk about innovation negatively (-1), not at all (0) or positively (1) which will make shareholder activism a categorical variable.
I will describe some examples of these shareholder statements in more detail to give a specific look at what is said and discussed.
Philip 2008: Mister Breen from Robeco stated that creativity and innovation has becomes more important every year and he wishes that the board elaborates more on the attraction and development on capital to make this happen (Samenvatting van de discussie in de algemene vergadering van aandeelhouders van Koninklijke Philips Electronics N.V., 2008).
Philips 2011: Mister Broenink refers to the slogan “sense and simplicity” and wonders why Philips does not introduce innovations concerning the growing market in tablets and smartphones (Samenvatting van de discussie in de algemene vergadering van aandeelhouders van Koninklijke Philips Electronics N.V., 2011).
Akzo Nobel 2010: Mister van der Helm refers to the innovations on eco premium products.
The goal was set to gather 22% of turnover out of sustainability but this was not achieved. He wonders why this was not achieved. Besides that he asks which products are new and whether this is enough to outperform the competition (Notulen van de algemene vergadering van aandeelhouders Akzo Nobel N.V., 2010).
ASM International 2010: Mister Tonic refers to the savings announced by the board. He wonders how ASM International can maintain their future potential without compromising future innovation power. Besides that he thinks that savings on innovation will turn out to have a negative effect (Akte houdende process verbaal van vergadering ASM International N.V., 2010) .
DSM NV 2009: Mister van Schalkwijk asked which products were undergoing
development and would contribute to profit next year. The board refered to the innovation
program with its target of generating 1 billion euros in additional revenue by 2010. Mister
Dekker states that this program contains 50 projects and wonders whether they are all still
running or if these projects might need more attention (Minutes of the Annual General Meeting of Shareholders of Royal DSM N.V., 2009).
DSM NV 2010: Mister Spanjer wonders about exchange loss when collaborating with third parties on innovations. He thinks that most innovations should be developed in-house to retain the competitive advantages but this might require more capital Minutes of the Annual General Meeting of Shareholders of Royal DSM N.V., 2010).
TomTom NV 2008: Mister Smit asks the board what the economic life cycle of a product is and whether it is possible to extent innovation in a broader way, maybe not only more smart phones, nut also in other fields (Transcript of the Annual General Meeting of Shareholders of TomTom N.V., 2008).
TomTom NV 2011: The board is taking about the alignment between sales and costs.
Mister Jorna wonder where costs will be cut to achieve this. He hopes that that there will be no cuts on R&D investments because then you would harm the company and its strategy Transcript of the Annual General Meeting of Shareholders of TomTom N.V., 2011).
Exact Holding NV 2011: Mister van Nieuwland argues that the regular turnover posts like licencing, service and maintenance are outdated. Exact should look at innovating with the implementation of the innovation box (Notulen van de jaarlijkse algemene vergadering van aandeelhouders: Exact Holding N.V., 2011).
KPN 2009: Mister Blok talks about the migration of traditional telephone services to Voice-Over-IP products. KPN is serving good products on IP but competitors like Microsoft and Google are very competitive parties. KPN should be aware of their activities and be active in developing IP services to manage this risk (Notulen Algemene Vergadering van Aandeelhouders Koninklijke KPN N.V., 2009).
All these statements represent positive shareholder activism. The shareholders respond to innovation expenses positively and recommend the board to, for instance broaden their search, increase in-house innovation or increase the budget that has been spend to certain projects. These statements will be given the value 1.
Besides determining whether shareholder activism has an effect on R&D intensity, this
study will determine its effect on the orientation of the boards as well. To be able to measure
the effects, shareholder activism will be divided in two dichotomous variables in which the value “not at all” will be the reference category
3.3.3 Board diversity.
The educational level of the board members will be coded into one of four levels: 1) high school, 2) bachelor degree, 3) master’s degree and 4) doctoral degree (Honoré et al., 2015).
Tenure will be measured by the amount of years a top manager has served the board. For example if a top manager has been assigned in 2008 his or her tenure will be valued 0 for the year 2008. If this manager is still serving the board in 2011 the value of tenure for 2011 will be 3. When applying these measurements, educational level becomes and ordinal and tenure a continuous variable.
But I am looking for diversity and this will be measured based on a variation of the Herfindal index used by Daellenbach et al. (1999) . This index will measure the diversity in educational level and tenure by using formula 2 for each board which makes both variables continuous.
H = 1 – ∑ 𝑃
2𝑖i = 1→s and s = E
Concerning this equation H indicates diversity and 𝑝
𝑖is the percentage of board members in each functional area. As can be seen next to the equation s is E. This means that, in line with previous research, the board members will be categorized into E categories. For educational level E=4, based on the levels of education. For tenure this is more complex since board members can have large varieties in tenure. Concerning our sample the 1191 board members take on 39 different values of tenure (E=39). If a function is not present the value i will be zero (i = 0). The value H can take on values ranging from 0, which indicates low diversity, up to 1, which means high diversity.
With the acquirement of data I was faced with missing data. For educational level this contained of 155 board members (13%) and for tenure data of 10 board members (0,8%). The firms that are faced with this missing data are essential for this study and that is why I have chosen to look at the average and most frequent scores concerning these variables. For educational level this score is, in both cases, 3 which indicates a master level. For tenure this is 2 years in both cases. These scores are addressed to the missing values.
Formula 2: Variation of Herfindal index
3.3.4 Control.
This study will control for the industry a firm is active in, the presence of an ultimate owner, the years of research, the annual dividend adjusted stock return, the firm size and the return on assets (ROA).
Some sectors of industry are more defined by R&D intensity. For example Aerospace, pharmaceutical, office accounting and computing machinery, radio, television and
communications equipment and medical instruments are industries that are defined by having a high R&D intensity since they have high novelty and need for reconfiguration (Tylecote and Ramirez, 2006). That is why I will control for industries by using a dichotomous variable.
This variable indicates whether the firm is active in high R&D intensity industry or not. To be able to create such a variable I have first looked at the 4 digit industry NAICS codes of the sample. This sample contains 32 different industries (Appendix 2 provides an overview of all different industries, their NAICS code, their industry number for this study and their value concerning the dichotomous variable). Based on the article of Tylecote and Ramirez (2006), the industry numbers 6, 11, 12, 15, 16, 19, 23, 27, 29 and 31 are expected to be more defined by R&D intensity. These industries will carry the value 1 in my dichotomous variable.
The presence of an ultimate owner has an effect on the level of control, since an ultimate owner has less fear of being expropriated (La Porta et al., 1999). The dominant form of controlling ownership (ultimate owner) in the world is families. These ultimate owners are usually not monitored by other large shareholders, which might indicate that the shareholder will express more voice (La Porta et al., 1999). Besides that Cziraki et al. (2010) state that large institutional investors rarely submit proxy proposals at AGMs but instead negotiate successfully with management behind the scenes. I will control for an ultimate owner by implementing a dichotomous variable which carries the value 1 if an ultimate owner is present and a value of 0 if it is not. The presence of an ultimate owner is indicated by the description of Orbis. Orbis detects ultimate owners if they capture a percentage for the path from a subject company of 25.01% and 50.01. Both values will be controlled for.
I will control for each year separately since it might be the case that the R&D intensity can be explained by year. At the end of 2008 the financial crisis reached the Netherlands
(Schinkel, 2009). The decreasing welfare might have influenced the level of R&D
investments in the years after that as a consequence of capital scarcity. The years will be
implemented by using three dichotomous variables in which 2008 is the reference category
Controlling for the adjusted stock return will be done by using the return in euros of the
year prior to the AGM. I have chosen these values since high returns in the previous year more likely influences the power shareholders want to express in the upcoming year (Poulsen, Strand and Thomson, 2010). Formula 3 provides a clear view concerning this measurement.
𝑆
𝑡= 𝑆
𝑡−1Concerning this equation 𝑆 indicates the dividend adjusted stock return in euros where t is the year to be measured. With this control variable I am stating that R&D intensity might also be explained by the adjusted stock return. It might be the case that higher returns will make the shareholder less active since the first motive is to protect their investment (Gillian and Stark, 2000). Honoré et al. (2015) describe the fact that top managers are risk-adverse when it comes to R&D expenses. Based on these findings it is expected that this study will find a negative correlation between stock returns and R&D intensity.
The last two control variables are implemented since shareholders and board members have less or more stake for a given level of control or risk if the firm is more valuable. Firm size will be determined by the logarithm of total assets and the ROA will be determined by the net income divided by the total assets, P/L before taxes. This data is derived from Orbis.
Similar as what is done for the variable dividend adjusted stock returns, I will measure the firm size and ROA of the year previous to the AGM as shown in formula 3.
Table 1 presents an overview of all the variables.
Variables Measurement
Dependent:
Innovation R&D intensity ; 𝑅&𝐷 𝑒𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 , Average R&D Intensity ; 𝑅𝑡=𝑅𝑡+𝑅𝑡+13+𝑅𝑡+2
Independent:
Educational level
Tenure
Diversity of independent variables
Coded into one of four levels: 1) high school. 2) bachelor degree, 3) master’s degree and 4) doctoral degree.
In absolute years .
H = 1 – ∑𝑃2𝑖 i = 1→s and s = E Formula 3: Index for pre-year control variables
Variables and measurement
Independent and Moderator:
Shareholder activism Content analysis on innovation at AGMs. Two dichotomous variables will determine whether shareholder talk about innovation negatively (-1), not at all (0) or positively (1).
Control:
Industry
Ultimate owner 25.1% and 50.1%
Year
Adjusted stock return Firm size
Return on Assets (ROA)
Dichotomous variable based on industry (NAICS code):
1=Firm is placed in an industry with high R&D intensity 0=Firm is not placed in an industry with high R&D intensity Dichotomous variable:
1=Firm has an ultimate owner
0=Firm does not have an ultimate owner.
3 dichotomous year variables for 2009, 2010 and 2011.
Absolute number in € of the previous year. 𝑆𝑡= 𝑆𝑡−1
log 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠.
𝑅𝑂𝐴 =Total AssetsNet Income P/L before taxes.
Table 1: Construction of the variables
3.4 Analysis.
I will have to perform several statistical tests to be able to answer the main research question. To test the hypotheses I will use descriptive statistics in the form of multiple linear regression. Multiple linear regression is appropriate for determining the coefficient of each independent variable on the dependent while the other variables remain constant. With this approach I will measure the effect of the explanatory variables shareholder activism and board diversity on R&D intensity (hypotheses 1 and 2). When implementing shareholder activism, the regression model will have to face an ordinal variable. To be able to implement this variable in linear regression, I will have to transform it into two dichotomous variables, labelled as negative and positive activism. For both variables, the value 0 indicates no activism.
The moderating effect will be determined with the acceptance or rejection of hypotheses 3a, b, and d. To implement shareholder activism as a moderator, I will have to multiply the value of each explanatory variable with the value of the moderator. This constructed variable will subsequently be implemented into the regression.
Before testing whether there is a linear relationship between the variables to accept or
reject the hypotheses, the correlation between variables has to be determined. This will be
done by using the Pearson correlation test.
After the Pearson correlation test the linear relationship will be examined. This will be done by using six different regression models. First, I will create a base for the model. This will be done by analysing the effect off the control variables on R&D intensity. More specifically, the variables industry (IND), the presence of an ultimate owner (UO25 and UO50), the active year (YE09, YE10 and YE11), the adjusted stock return (ASR), firm size (FS) and return on assets (ROA) will be tested to have an influence on R&D intensity (RD).
The regression model as displayed in formula 4 will be used for this analysis.
𝛾 = 𝛽0 + 𝛽1𝐼𝑁𝐷 + 𝛽2𝑈𝑂25 + 𝛽3𝑈𝑂50 + 𝛽4𝑌𝐸09 + 𝛽5𝑌𝐸10 + 𝛽6𝑌𝐸11 + 𝛽7𝐴𝑆𝑅 + 𝛽8𝐹𝑆 + 𝛽9𝑅𝑂𝐴 + 𝜀
After that the explanatory variables positive and negative shareholder activism (SAP and SAN) and educational level (ELD) and tenure diversity (TED) will be implemented. These four explanatory variables will separately be implemented leading to four different regression models. The regression model as displayed in formula 5, is an example of the implementation of positive shareholder activism (SAP). For the other models the explanatory variable 𝛽1𝑆𝐴𝑃 will be replaced by 𝛽1𝑆𝐴𝑁 (regression model 3), 𝛽1𝐸𝐿𝐷 (regression model 4) or 𝛽1𝑇𝐸𝐷 (regression model 5). With these models I will be able to test hypotheses 1 and 2.
𝛾 = 𝛽0 + 𝛽1𝑆𝐴𝑃 + 𝛽2𝐼𝑁𝐷 + 𝛽3𝑈𝑂25 + 𝛽4𝑈𝑂50 + 𝛽5𝑌𝐸09 + 𝛽6𝑌𝐸10 + 𝛽7𝑌𝐸11 + 𝛽8𝐴𝑆𝑅 + 𝛽9𝐹𝑆 + 𝛽10𝑅𝑂𝐴 + 𝜀
To be able to test the hypotheses 3a, b, c and d, the moderator will be implemented into the regression model. This means that the explanatory variables ELD and TED will be multiplied by SAP and SAN. Formula 6 provides a clear view on how regression model 6 looks like when implementing the interaction.
𝛾 = 𝛽0 + 𝛽1𝑆𝐴𝑃 + 𝛽2𝑆𝐴𝑁 + 𝛽3𝐸𝐿𝐷 + 𝛽4𝑇𝐸𝐷 + +𝛽5(𝐸𝐿𝐷 × 𝑆𝐴𝑃) + 𝛽6(𝐸𝐿𝐷 × 𝑆𝐴𝑁) + 𝛽7(𝑇𝐸𝐷 × 𝑆𝐴𝑃) + 𝛽8(𝑇𝐸𝐷 × 𝑆𝐴𝑁) + 𝛽9𝐼𝑁𝐷 + 𝛽10𝑈𝑂25 + 𝛽11𝑈𝑂50 + 𝛽12𝑌𝐸09 + 𝛽13𝑌𝐸10 + 𝛽14𝑌𝐸11 + 𝛽15𝐴𝑆𝑅 + 𝛽16𝐹𝑆 + 𝛽17𝑅𝑂𝐴 + 𝜀
Formula 4: Regression model 1; control variables
Formula 5: Regression model 2; hypothesis 1a
Formula 6: Regression 6; model interaction hypothesis 3
In all the regression models ß0 is the intercept and Ɛ the error term. A significance level of 0.05 (p < 0.05) and 0.01 (p < 0.01) will determine whether the hypotheses can be accepted or rejected when carrying out the correlation and multiple linear regression analysis.
4. Results.
4.1 Sample data.
Before looking at correlation and linearity, I will look at the acquired sample data. The sample contains 38 Dutch listed firms at the AEX.
4.1.1 Independent variables.
Table 2 displays data of the independent variables. The sample contains 1191 board members. The boards of the sample contain an average of 7.84 members but 10 members is most frequently observed. The average tenure of the board members is 5.16 years but 2 years is scored most frequently. This might indicate a high variance of the mean and large diversity when it comes to tenure. With a value of 25.971 for the variance and an average diversity of 0.75 it can be stated that this is true. When it comes to educational level, board members are more equal. The most frequent detected value is 3, which indicates a master level, with a mean score of 3.05. Although a mean score of educational level is not very relevant for this variable it indicates, together with a small variance of 0.164, that we can expect large homogeneity in educational level when it comes to the 38 firms. The average score of educational level diversity is 0.25 which states that this is true. Based on this data the diversity of the boards will be measured and these diversity variables will be used for regression.
The AGMs are used to detect shareholder activism and in total 152 minutes of AGMs are
inspected. With shareholder activism I have wanted to decide whether shareholders respond
negatively (-1), not at all (0) or positively (1) when it comes to the R&D activities of the
firms. When investigating these AGMs, I have only detected the values 0 and 1 which
concludes that shareholders have not spoken negatively about the R&D investments of the
firms. When it comes to the regression models this means that only one dichotomous
variables will be implemented, positive shareholder activism (SAP). This has consequences
for the regression models. Concerning the regression models, 𝛽1𝑆𝐴𝑁, 𝛽6(𝐸𝐿𝐷 × 𝑆𝐴𝑁) and
𝛽8(𝑇𝐸𝐷 × 𝑆𝐴𝑁) will be excluded which means that regression model 3 will not be executed
and regression model 6 (formula 6) will change. Formula 7 displays the revised regression model 6.
𝛾 = 𝛽0 + 𝛽1𝑆𝐴𝑃 + 𝛽2𝐸𝐿𝐷 + 𝛽3𝑇𝐸𝐷 + 𝛽4(𝐸𝐿𝐷 × 𝑆𝐴𝑃) + 𝛽5(𝑇𝐸𝐷 × 𝑆𝐴𝑃) + 𝛽6𝐼𝑁𝐷 + 𝛽7𝑈𝑂25 + 𝛽8𝑈𝑂50 + 𝛽9𝑌𝐸09 + 𝛽10𝑌𝐸10 + 𝛽11𝑌𝐸11 + 𝛽12𝐴𝑆𝑅 + 𝛽13𝐹𝑆 +
𝛽14𝑅𝑂𝐴 + 𝜀
Formula 7: Revised regression model 6; hypothesis 3
Besides the changes in the regression models, this missing data also influences the ability to test the some hypotheses. As a consequence of the missing, negative shareholder activism, this study will not be able to test hypotheses 2b, 3b and 3d.
Total number Mean number
Most frequent number
Variance Standard Deviation
Mean diversity
Shareholder Activism
152 AGMs 0
Educational level
3.05 3 (Master Degree) 0.16 0.41 0.25
Type of education
Business Administration
Tenure 5.16 years 2 years 25.97 5.10 0.75
Board size 1191 members (399 original)
7.84 members
10 members 6.05 2.46
Table 2: Data of Independent variables
When looking at the acquired data concerning shareholder activism, table 3 gives a full overview of the values given to the firms based on the statements by shareholders at AGMs.
The table shows statements in catchwords which are derived from the performed content analysis. These statements indicate that these shareholders respond positively to innovation.
The shareholders want the firm to keep or increase developing and investing in innovation.
Data of the independent variables
Shareholder activism and the exertion of control towards innovation. 28
Company/Year
2008 2009 2010 2011
Index Statement Index Statement Index Statement Index Statement
Aalberts 0 0 1 More patents and protection of
innovation.
0
Accel Group 0 1 Stimulating to continue innovation. 1 Innovation in producing and
packaging (sustainable).
1 More investments in patents for innovation to secure competitive advantage.
Ahold 0 0 0 0
Akzo Nobel 1 How will the Akzo Nobel-ICI combination lead to growth? Will there be more R&D to create this?
1 Which technologies will be developed? What will be the platforms?
1 22% of turnover should be derived from sustainable innovations but this is not achieved.
1 Satisfied with the growth in innovation and sustainability.
AMG 0 1 Choices in investments No R&D
might lead to problems in liquidity and solvency.
1 Innovation concerning environmental issues.
1 Disappointment about the decline in R&D expenditures.
Arcadis (Heidemij) 0 0 0 0
ASM International 1 More improvements to prevent disappointing stock returns,
1 Too much cutting on R&D investments.
1 Savings on innovation will have a negative effect.
1 More use of patents.
ASM Lithography 1 ASM Litography needs to accelerate the development of technological advanced products to serve the market’s needs.
1 Countering the developments at Intel (concerning 3D-chip) with in- house innovation
1 Acquiring new product development and customer acceptance.
1 Introduction of sustainable developments in innovation are taking long.
Ballast Nedam 0 1 1 0
BAM Groep 1 Failure costs require more R&D. 1 Failure costs require more R&D. 0 0
Beter Bed Holding 0 0 0 0
Boskalis (Westminster)
0 0 0 0
Brunel International
0 0 1 The Brunel academy for
employees.
1 R&D to prevent the treat of ZZP and pay rolling.
Corio 0 0 0 0
DSM 1 Move investments from mine
coaling to innovation and high- quality technology in life and material sciences.
1 Projects that might need more attention and capital.
1 In-house development. 1 More investments in innovation
since the competition had cut down costs.
Index shareholder activism
- The value 1 indicates “positive expression” towards innovation and the value 0 indicates “no expression”.
Shareholder activism and the exertion of control towards innovation. 29
Exact Holding 0 0 0 1 Innovation box
Fornix Biosciences 1 More emphasis on the registration of innovations.
1 More investments in development next to key products.
1 Synergy for autonomic development.
1 Development to prevent Fornix from losing more profit.
Fugro 0 0 0 0
HAL Holding 0 0 0 0
Hunter Douglas 0 0 0 0
Kardan 0 0 0 0
KPN 0 1 Remain active and aware on Voice-
over-IP products. Create sufficient products and services.
1 Very pleased with the developments in sustainable products and services.
1 Pleased with the developments in sustainable products and services but the focus should now shift to recycling of telephone parts.
KTC 1 Generating more notoriety on
technological innovations.
0 1 Increase in sustainable
innovations (artificial turf).
1 Very pleased with the developments in artificial turf.
Macintosh 0 0 0 0
Nutreco Holding 1 Innovation is important due to shortage in raw materials
1 R&D expenses should rise as a percentage of turnover.
1 Introduction of innovation and a sustainability committee
1 Collaboration to acquire capital for innovation.
Ordina 0 0 0 0
Pharming 1 Leading products still have not reached the market.
1 Very satisfied with the developments of Rhucin (medication).
1 Very satisfied with the developments of Rhucin (medication).
1 Only generating turnover from an innovation like Rhucin might be too risky.
Philips 1 Development and attraction of capital.
1 Innovation on green-products. 1 Disappointing percentage of turnover by green products.
1 Tablets and smartphones.
SBM Offshore 1 hydrocarbon reserves will deplete one day and the need for energy will continue to be exploited.
0 1 Wondering whether enough
R&D expenditures where spent on wave energy.
1 A major subject should be the R&D developments to serve the right solutions to people in countries like Brazil and Angola.
Sligro Food Group 0 0 0 0
Telegraaf Media Groep
0 0 0 0
TKH Groep 1 Systems should be the building blocks for innovation.
1 More specialization to create and supply innovation.
1 Innovation box. 1 Innovation box.
TomTom 1 Extent innovation in a broader way.
1 Developments in recycle parts for new product innovations.
1 Technology and innovation have priority.
1 Cutting costs of innovation will harm the firm and its strategy.
Vastned Retail 0 0 0 0
Vopak 0 0 0 0
Wereldhave 0 0 0 0
Wessanen 0 0 0 0
Wolters Kluwer 0 0 0 0
Table 3: Index Shareholder activism
- The value 1 indicates “positive expression” towards innovation and the value 0 indicates “no expression”.
