ofcontrolwillalsobelow.Inthissection,wefirstconsider
themechanismsforchangingmanagement,andthensomeof
the factors that determine the likelihood of management
change.
Mechanisms for Changing Management
It isdifficult to changetheway a companyis run,but in
general,therearefourwaysinwhichitcanbedone.Thefirst
isavariationofmoraloratleasteconomicsuasion,where
oneormorelargeinstitutionalinvestorsintroduceshareholder
proposals designed primarily to improve corporate
governance,holdingthethreatofmoreextremeactionover
theheadsofmanagers.Thesecondisaproxycontest,where
incumbentmanagers arechallenged for proxyvotes by an
investorwhoisunhappywiththewaythefirmisrun;with
sufficient votes, the investorcan getrepresentation on the
board andmaybeable tochangemanagement policy.The
thirdistotrytoreplacetheexistingmanagersinthefirmwith
morecompetentmanagers;inpubliclytradedfirms,thiswill
require a board of directors that is willing to challenge
management. The fourth and most extreme is a hostile
acquisitionof thefirmbyan investoror anotherfirm; the
incumbent management is usually replaced after the
acquisition and management policy is revamped.
Activist Investors
Mostinstitutionalinvestorsarepassiveandchoosetoselland
moveonwhentheydislikethewayacompanyisrun.Amix
of pension funds and private investors has shown a
willingnessto confrontincumbentmanagers.Theseactivist
investors, with theweightof theirlarge stockholdings,are