Legacies of Shareholder Activism: The Dynamics and Consequences of Emotion in the Boardroom

Despite indications that shareholder activism can elicit strong emotions, there is little theory that considers the effect of those emotions on board dynamics or the outcomes of activist episodes. This paper uses a “phenomenon-driven” approach to develop theory regarding how activism arouses director emotion, and what implications emotion has for boards during and after activist episodes. We leverage work on self-determination theory to explore conditions under which activism will arouse negative director emotion. Our theorizing highlights that differences in individual characteristics contribute to diversity in directors’ emotional reactions. Next, we consider how directors’ emotions subsequently evolve as board members interact. We develop a novel typology of affective states that characterize the emotional environment in the boardroom and help predict the emotional costs (i.e., psychological strain) incurred by directors as a result. Finally, we show how emotional costs have long-term implications for board functioning, thereby highlighting legacies of activism that have yet to be explored in prior work. In theorizing about how emotion influences activist episodes, we also develop a valuable lens with broad applicability for scholarship in the behavioral governance domain.