An Analysis of the Impact of Shareholder Activism in Corporate Governance: The Case of the Zimbabwean Banking Sector

Abstract

The shareholder-manager relationship is the most essential framework in corporate governance. A good corporate governance system is one which is able to tackle the conflicts of interest between managers and owners of a corporation and resolve them. The behavioural aspects such as 'short termism', 'absentee landlords' and the agency problem weaken corporate governance structures. Shareholder activism enables shareholders to assert their rights, in order to influence corporations’ behaviour. The study sought to analyse the impact of shareholder activism in Zimbabwe’s banking sector. In Zimbabwe, the concept of shareholder activism remains rather obscure; it has not gained much currency. The banking sector plays an important role as financial intermediary and is a primary source of financing for the domestic economy. The sector has seen the collapse of many banks, largely attributed to poor corporate governance practices. It is in this light that the study submits that shareholder activism is an integral aspect of corporate governance. The study drew on the views of stakeholders in the banking sector and was inherently qualitative. A total of 8 banks and 1 building society were studied. Questionnaires and focus group discussions were carried out. The interviews were with a major institutional shareholder. The study unearthed a positive relationship between shareholder activism and corporate governance. Indeed it can be posited that shareholder activism can reduce the agency problem and increases accountability. Shareholder activism in the banking sector needs to be vibrant.

DOI: 10.5901/mjss.2014.v5n25p11