United We Stand: Corporate Monitoring by Shareholder Coalitions in the UK

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Abstract
This paper investigates whether voting coalitions are formed by shareholders in order to discipline incumbent management. Shapley values capturing the relative power of shareholder coalitions by category of owner, outperform models with percentage ownership stakes and models measuring the relative voting power of individual owners. There is evidence of successful executive director resistance to board restructuring if these executive directors can combine their ownership stakes to a substantial block of voting power. Non-executive directors seem to support incumbent management, but poor performance is penalised by industrial and commercial companies with large relative voting power. The voting power of insurance companies is positively related to executive director turnover, but this voting power is used for remove management for reasons of other than performance, which may be of strategic nature. Investment/pension funds and funds managed by banks do not play a role in the management substitution process. A large number of share blocks change hands, and new shareholders - industrial companies, individuals and families - are related to increased executive director turnover. Still, these changes in share stakes do not constitute a market in (partial) control since there is no systematic evidence that these changes are triggered by poor performance with the notable exception of industrial companies. There is little evidence that adjusting the board composition to allow for more independence for non-executive directors leads to higher managerial removal. In contrast, high gearing facilitates substitution of executive directors, especially if the company needs to be refinanced.

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