Rhetorical Contests Over Environmental and Social Proposals in Proxy Statements

Activists push firms to improve their environmental and social (ES) performance using shareholder proposals. These ES proposals threaten managerial legitimacy and control, so management argues against activists to deflect their threat. We quantitatively examine how activists and management use rhetorical strategies in proxy statements to persuade shareholders to vote for or against ES proposals. Drawing on Aristotle's On Rhetoric , we study how appeals to ethos , logos , and pathos persuade proxy advisors and shareholders. We utilize natural language processing to develop replicable measures for each type of appeal, which we use to examine 1708 ES shareholder proposals in 1055 proxy statements from 2007 to 2021. Management at firms with higher levels of insider control and block ownership uses less persuasive rhetoric. Rhetorical strategies by activists and management are associated with proxy advisor recommendations and shareholder votes that support their respective sides. Activist and management rhetoric affect votes incrementally to proxy advisors’ recommendations, suggesting that the contesting parties are able to influence individual investors through their rhetoric.