Shareholder Value Orientation: Grand Unified Business Theory or Window-Dressing?

Previous research has shown that sociopolitical context is important for adoption of shareholder value-oriented practices in terms of owner and manager preferences (Fiss & Zajac, 2004). This turn of research and its focus on owners has further been elaborated on by for example Chizema & Shinosawa (2012) and Zattoni & Minichilli (2009) as well as by Saunders & Tuschke (2007) and Shipilov et al. (2010) when it comes to the importance of firm networks. The purpose of this paper is to continue to explore why firms adopt shareholder value practices and especially so in traditional stakeholder governance system. Drawing on institutional theory, we develop a model of firm adoption of shareholder value practices which emphasizes the two sociopolitical features of different ownership types and board networks.

The model is tested on all Swedish listed companies 1995 to 2010 in five-year intervals. Furthermore, we specifically choose to study the two separate practices of using a dual-share system or not and executive incentive plans, as they are both closely connected to an agency-theory perspective and shareholder value orientation, but are very different in how upsetting one may assume them to be to the incumbent corporate governance system.

Our findings show that a shareholder value orientation seems to have taken root in Swedish companies, but that different aspects of the concept are affected by different actors, making the traditional Swedish blockholders and board networks vital although in separate ways. When it comes to the practice of equity incentive-based executive compensation, this is closely related to firm relations in terms of both board interlocks and board centrality. Thus, social networks seem to drive this practice. When it comes to using a one-share-one-vote system (rather than as traditional in Sweden A- and B-shares), social networks seem to have no importance at all. Instead, what is closely related to the adoption of such a non-traditional system is whether there are strong blockholders or not and of which type this owner is, as family and sphere blockholding is negatively related to one-share-one-vote, whereas institutional and foreign blockholding is positively related to it. Thus, non-system-threatening practices are readily diffused through social networks, as tends to be the case with symbolic action, but system-threatening practices are met with resistance from incumbent powerful actors.

We suggest that rather than hypothesis-testing of different variables, the contribution of our paper lies in its teasing out of different patterns for different shareholder value orientation practices, as it may help explain the different results in previous studies in similar European contexts. For where Fiss & Zajac (2004) emphasize their findings on the importance of owners (and the non-importance of networks), Sanders & Tuschke (2007) as well as Zattoni & Minichilli (2009) in contrast emphasize the non-importance of owners and in the first case the importance of networks, which are unfortunately not included in the latter one. The explanation for these diverging results may then be found in the dependent variable, as who is invested (or not) in the practice may determine its adoption.