“The central focus of my research is shareholder activism and how firms learn from activism over time”: Dr. Judy Lu

Judy Lu recently completed her PhD at Henley Business School, where her research explored how organisations learn from shareholder activism and how these learning processes influence corporate governance and long-term organisational adaptation. Her work bridges academic research and business practice, with a particular focus on corporate governance, sustainability, shareholder management, and organisational learning.

Alongside her academic achievements, Judy is Associate of the Chartered Insurance Institute (CII) and has built a successful career spanning nearly two decades in multinational insurance. As a Multinational Network Manager at QBE Insurance, she has developed deep expertise in global insurance programmes, international insurance regulations, local market practices, and cross-border insurance solutions. This frontline experience has given her a deep understanding of enterprise risk management, international business operations, and capital optimisation, providing valuable practical insights that complement her academic research.

She is passionate about translating rigorous academic research into practical insights for businesses, demonstrating how organisations can turn external pressures – such as shareholder activism – into opportunities for organisational learning, stronger corporate governance, and sustainable long-term value creation.

Praveen Gupta (PG): What is the relationship between organisational learning and shareholder activism?

Judy Lu (JL): Organisational learning is closely linked to shareholder activism because activism acts as an external feedback mechanism that triggers firms to reassess and adjust their governance and strategic practices. Although shareholder proposals are not legally binding, firms cannot ignore them due to reputational, market, and stakeholder consequences. These pressures incentivise firms to learn from activism experiences in order to reduce future targeting. My thesis shows that this learning occurs not only through direct activist engagement but also through observing peer firms and industry-wide activism trends. Overall, shareholder activism functions as both a governance monitoring tool and an organisational learning mechanism that shapes how firms adapt over time.

PG: Did you focus on any particular geography, segments and timeline?

JL: I focus on US Russell 3000 firms from 2006 to 2020 using ISS Voting Analytics data across 68 industries. The US is a leading market for shareholder activism with strong institutional investor participation and well-developed governance mechanisms, making it an ideal setting to study activism behaviour. The Russell 3000 allows me to capture a broad cross-section of firms, including large and small companies, which is important for analysing heterogeneity in learning and responses. The 2006 – 2020 period covers the post-financial crisis expansion of governance activism and the rise of Environment Social & Governance (ESG) and Socially Responsible Investing (SRI) activism, allowing me to study evolving patterns over time.

“Shareholder activism functions as both a governance monitoring tool and an organisational learning mechanism”

PG: How do firms and boards adapt to activism pressures?

JL: Firms and boards adapt to shareholder activism through three main channels: direct experience, peer observation, and governance transformation. First, firms learn from their own activism exposure, which reduces the likelihood of future targeting, particularly in governance-related activism. Second, firms also learn vicariously from peers, with an inverted U-shaped pattern showing that industry-wide activism initially increases exposure but eventually leads to adaptation and reduced targeting. Third, at the board level, activism and governance co-evolve: governance activism is associated with increases in board independence, while board characteristics also influence future activism. However, these learning and adaptation processes are conditional on firm size, age, and industry context. In summary, adaptation to activism is dynamic and multi-layered rather than uniform, involving both behavioural learning and structural governance change.

PG: In what ways is shareholder activism both a challenge and a catalyst for organisational learning and corporate governance change?

JL: Shareholder activism is both a challenge and a catalyst for organisational learning. As a challenge, it acts as an external governance mechanism that exposes weaknesses in boards, management, and corporate practices, increasing reputational and monitoring pressure. But it is also a catalyst for learning, because firms do not just react once – they learn from their own activist experiences and from observing peer firms. My findings show that activism creates cumulative learning processes, where prior exposure reduces future targeting and peer experiences shape industry-wide behaviour through spillover effects. Importantly, these effects vary across governance and SRI activism and across different types of firms. Therefore, activism functions not just as an intervention, but as an ongoing information environment that drives continuous governance adaptation.

“Activism creates cumulative learning processes, where prior exposure reduces future targeting and peer experiences shape industry-wide behaviour through spillover effects”

PG: Whether and how companies targeted by shareholder activism learn from prior experiences?

JL: Yes, companies do learn from prior shareholder activism, but the learning effects are not consistent across all firms. I find that firms with previous activism experience are significantly less likely to be targeted again, suggesting they implement governance or strategic changes that reduce future activism. However, learning is contingent on both the type of activism and firm characteristics. Governance activism generates stronger learning because it addresses core governance issues that firms can respond to relatively quickly.

In contrast, learning from SRI activism is more limited because environmental and social changes often require longer-term organisational transformation. I also find that smaller firms, older firms, and firms in non-environmentally sensitive industries exhibit stronger learning in different contexts. To sum up, organisational learning from shareholder activism is heterogeneous rather than uniform, demonstrating that firms’ ability to learn depends on their organisational characteristics and the nature of the activist demands.

PG: Vicarious learning was also part of your study. What were the findings?

JL: The key finding is that firms learn vicariously from the shareholder activism experiences of their peers. I found an inverted U-shaped relationship between peer activism and subsequent activism. Initially, as activism increases within an industry, firms are more likely to be targeted by the shareholder activists.  However, over the time despite a continued increase in industry-wide activism, firms demonstrate a reduction in their activism levels. This nuanced finding underscores the complexity of how firms assimilate and respond to the activism experiences of their peers.

I also found that firms do not learn only from better-performing peers, as the performance gap was not significant. This suggests that shareholder activism functions as an industry-wide information environment, where firms learn broadly from peer experiences rather than selectively from financially superior firms.

“Shareholder activism functions as an industry-wide information environment, where firms learn broadly from peer experiences…”

PG: Why do you need to distinguish between governance activism and SRI activism?

JL: I distinguish between governance activism and SRI activism because they differ in their objectives, historical evolution, and the mechanisms through which they influence firms. Governance activism focuses on traditional governance issues such as board independence and executive compensation, whereas SRI activism addresses broader environmental and social issues. These differences mean that firms learn from them differently. My findings confirm this: governance activism can influence governance structures, particularly board independence, while SRI activism primarily targets firms that already possess stronger diversity characteristics rather than creating demographic change. Separating the two therefore reveals heterogeneous learning processes and governance outcomes that would be hidden if shareholder activism were treated as a single construct.

PG: How significant were ESG and DEI in your study?

ESG and DEI are significant themes in my thesis, but they are not the primary phenomenon under investigation. The central focus of my research is shareholder activism and how firms learn from activism over time. ESG and DEI provide the governance context through which these learning processes operate, particularly in my third empirical study.

In the third study, I investigate the reciprocal relationship between activism and DEI-related board characteristics over time. My findings demonstrate that ESG and DEI matter in two important ways. First, they influence activist targeting. Firms with more gender and ethnic diversity are more likely to attract subsequent SRI activism, suggesting that activists perceive these firms as more receptive to ESG-related engagement rather than using activism primarily to create diversity. Second, activism itself has different capacities to influence governance outcomes. Governance activism can produce modest improvements in board independence, whereas demographic diversity changes much more slowly, indicating that structural governance reforms are more responsive to activism than demographic characteristics.

ESG and DEI help explain why activism should not be treated as a single homogeneous phenomenon. Different activist objectives interact with different governance dimensions, leading to distinct patterns of corporate adaptation and learning.

“Structural governance reforms are more responsive to activism than demographic characteristics”

PG: What would you say are the key learnings from your thesis – for managers, investors and policyholders?

JL: The findings suggest that shareholder activism should be understood as an ongoing governance process rather than a one-off event. For corporate managers, the key implication is that activism provides continuous learning opportunities. Firms that treat activist interventions as signals of governance expectations – both from their own experience and from peer firms – are better able to strengthen governance structures, improve stakeholder engagement, and reduce future vulnerability to activism. Managers need a balanced approach: selectively learning from activism while maintaining firm-specific strategies. The evidence also highlights that governance activism is more effective in driving changes in board independence than demographic diversity, while SRI activism tends to focus on already diverse firms, suggesting boards must ensure diversity translates into substantive governance outcomes rather than symbolic representation.

For investors, the key message is that activism history and responsiveness are important signals of governance quality. Firms that learn from activism tend to demonstrate stronger managerial accountability and lower long-term governance risk. Importantly, activism also generates information spillovers, meaning peer responses within industries are informative for assessing broader governance quality.

For policymakers and regulators, the findings show that shareholder activism complements formal regulation by supporting market-based governance and organisational learning. Policies should therefore enhance transparency and disclosure so that firms and investors can learn from activism outcomes, while avoiding herd-like or symbolic compliance. At the same time, regulators should recognise that board diversity alone does not guarantee effective governance, and focus instead on ensuring that diversity leads to meaningful oversight.

PG: Could you give examples of companies that did well or not so well regarding shareholder activism, learning from peers or DEI?

There are several good examples that illustrate the patterns identified in my research.

One of the strongest examples is ExxonMobil. In 2021, activist hedge fund Engine No.1 succeeded in electing three directors to Exxon’s board despite owning only a very small stake. This became one of the defining examples of shareholder activism influencing corporate governance and climate strategy. From my research perspective, it demonstrates that activism can act as an external learning mechanism, forcing boards to reassess governance practices rather than simply responding to a single proposal. Interestingly, subsequent research has shown that markets generally viewed the board changes positively, particularly for firms facing environmental risks.

A second example is Disney. In 2024 Disney successfully resisted activist investor Nelson Peltz’s board challenge after making strategic and governance changes ahead of the proxy contest. Although management prevailed, the campaign arguably accelerated governance improvements and shareholder engagement, illustrating that firms often adapt before activism succeeds formally.

“Firms benefit from organisational learning because improving governance and transparency early may reduce both activist pressure and future litigation risk”

Looking specifically at DEI, Disney also provides an interesting recent example. In 2025 shareholders overwhelmingly rejected a proposal asking the company to withdraw from the Human Rights Campaign’s Corporate Equality Index. This suggests that even during a period of political backlash against DEI, many shareholders still distinguish between ideological debates and long-term governance considerations.

My research would interpret these cases as evidence that activism is rarely about “winning” or “losing”. Rather, it creates an information environment that encourages firms to reassess governance, anticipate stakeholder expectations, and learn from both their own experiences and those of their peers.

PG: Did you come across any class action suits and trends that relate to your study?

JL: Although class action litigation was not the focus of my thesis, there are interesting connections. Both shareholder activism and securities class actions are external governance mechanisms that increase managerial accountability, although they operate differently.

Activism is generally forward-looking. Investors seek governance reforms, board changes or strategic improvements while remaining shareholders.

Class actions are generally backward-looking. They seek compensation after alleged disclosure failures, securities fraud or governance failures have already occurred.

Increasingly, however, both mechanisms intersect around ESG and disclosure quality. For example, companies now face litigation relating to alleged “greenwashing” or misleading ESG disclosures. These cases reinforce one of my central arguments: firms benefit from organisational learning because improving governance and transparency early may reduce both activist pressure and future litigation risk.

“Issues such as climate risk, cybersecurity, human capital, supply chain resilience and board oversight remain material business risks regardless of political trends”

PG: Any noticeable shift between Trump 1.0 and 2.0?

JL: My data ends in 2020, so I cannot make empirical claims beyond that period. However, viewed through the organisational learning framework, the environment has clearly evolved.

During the latter part of my sample and into the Biden administration, ESG and DEI became increasingly prominent topics for shareholder proposals. More recently, under the return of the Trump administration, the emphasis has shifted. Rather than simply seeing more ESG proposals, we are also seeing more anti-ESG and anti-DEI shareholder proposals.

What is interesting is that shareholder activism itself has not disappeared. Instead, the issues being contested have changed. Activism remains a mechanism through which investors express competing views about long-term corporate strategy.

This actually reinforces one of the broader conclusions of my thesis. Organisational learning is not about responding to one political cycle. It is about developing governance systems that allow firms to adapt to changing stakeholder expectations over time. It is interesting to note that anti-DEI shareholder proposals have roughly tripled since 2020 and ESG proposal support from large US investors has declined significantly since its peak around 2021

The governance landscape has become more politically polarised, but the need for firms to learn, adapt and engage with shareholders has arguably become even more important.

PG: Do well-governed companies continue vigourously practicing ESG today – eventhough regulators tend to be generally muted?

JL: Yes. I think ESG has evolved rather than disappeared.

During my study period, ESG increasingly became a focus of shareholder activism. Today, the language around ESG may be less prominent in some jurisdictions, particularly in the United States, but many well-governed companies continue to integrate environmental, social and governance considerations into mainstream business strategy.

The reason is practical rather than ideological. Issues such as climate risk, cybersecurity, human capital, supply chain resilience and board oversight remain material business risks regardless of political trends.

From the perspective of my research, ESG should be viewed as part of organisational learning. Firms that learn from shareholder feedback tend to build stronger governance systems, improve transparency and become more resilient over time. Whether companies label these activities as “ESG”, “sustainability” or simply “good governance” is arguably less important than whether they genuinely improve decision-making and accountability.

In other words, the terminology may change, but the underlying governance principles remain highly relevant.

 PG:  Many thanks for these brilliant insights, Judy. Once again, hearty congratulations for the very inspiring work in pursuit of a well earned doctorate.