Over our dead bodies

Some rebellions are built on anger. Even so, these can also be constructive. In this third instalment on "Market Rebels," we examine rebellions of a more destructive nature, rebellions that are less about innovation than about organizational change.

	Title:	Market Rebels
	Author:	Hayagreeva Rao
	Pages:	222pages
	Publisher:	Princeton University Press
	Price:	$24.95

To access the first part of this series, please click here.
To access the second part of this series, please click here.

For professor Hayagreeva Rao of Stanford GSB, rebellion often arises as a response to undesired behavior, for example on the part of companies. Our previous examples, such as micro-brewing and Nouvelle Cuisine, were innovative rebellions, in the sense that they proposed change without destruction. In this instalment, we examine what could be called ‘zero-sum’ rebellions: these rebels are acting to the detriment of established organizations.

To illustrate these ‘destructive’ rebellions, professor Rao delves into three examples.

We will cover two of these examples here: shareholder activism and the German anti-biotechnology movement.

Shareholder activism
Although shareholder activism is not a recent phenomenon, professor Rao underlines its development in the mid-eighties. As the sheer number of individual investors rose in that period, their rights became the hot cause around which various activists rallied.

Among the activists were so-called gadflies – strong personalities such as Evelyn Davis who paraded at a General Motors annual meeting in her swimsuit – and also more staid constituents, such as institutional investors and mutual fund advisors. Perhaps one of the more tantalizing recent gadfly rebellions was around the excessive compensation of Bob Nardelli, the former CEO of Home Depot. His 2005 pay and bonus raises were the straw that broke the camel’s back, at a time when company stock performance was lackluster. Although only small numbers of demonstrators paraded in front of the annual shareholder’s meeting, that was enough to roust media curiosity and lead to his eventual ouster. A clear case of market rebels having a strong impact on organizational outcomes.

According to professor Rao, shareholder activism should have started with the creation of the joint stock company; after all, the objectives of management and shareholders are not perfectly aligned. Just one example: executive compensation, where managers push for extra perks and privileges, whereas shareholders would rather keep strict control, so as to enjoy fatter dividends.

Although shareholders are not new on the scene, it was the rise of institutional investors (from 16% of shareholders in 1965 to 43% in 1986) that caused shareholder activism to take off. This class of shareholder did not want to rock the boat (exit costs were too high), yet they needed to discharge their fiduciary responsibility, especially in the case of public pension funds. Unlike gadflies, institutional investors would avoid the limelight, and work the company backrooms to get their way. The tactics included letters to management, the proposal of shareholder resolutions, vote-no campaigns and black lists.  

German anti-biotech
One can almost feel professor Rao’s sense of frustration as he recounts the story of how certain big German pharma companies (e.g. Hoechst, BASF, Bayer) were jostled, brow-beaten and sidetracked by a motley crew of activists opposed to genetic engineering, in the Germany of the 1980s and 90s.

Although Germany is a hotbed of industrial innovation and scientific R&D, it is also home to some of the world’s most outspoken protestors. Big industrial issues in the past have included nuclear energy and chemical products, and both themes were occasions for the radical Green Party to sharpen its teeth.

After biotechnology started its early promising development in Germany from the 1970s to the mid-eighties, it became the next hot cause. What attracted the rebels? According to professor Rao, it was the dangers and risks of the unknown. Carrying out research on genetic material brought back memories of Nazi experiments on eugenics, and evoked images of Frankenstein.

For the sixty-odd groups of anti-biotech activists, this was fertile ground for non-conventional warfare. The tactics included dramatic spectacles to entice TV coverage, leaflet distributions to harass scientists via their children and school teachers, and even went as far as arson against genetic research centers.

The active and vocal opponents included environmentalists, feminists, religious fundamentalists and the political support of the Green Party. This political leverage was important since it enabled passage of restrictive regional laws and delayed corporate investments, which would prove fatal to some of the German pharma companies in the race to develop patents and get to market first.

For professor Rao, one of the important lessons to retain from the German biotech fiasco is that social movements can slow the trajectory of technology; in turn, that can reshape companies in their organization. He refers to the fact that many German pharma giants lost out in the biotech development, and those that did remain active did so via the ‘outsourcing’ of their biotech activities to other countries, in particular the USA.

In the next issue of Casium we will present the rebellious toolkit for managers and activists.

Published in May 2010.
Next issue: May 26, 2010