From stock to seat: Shareholder activism as an internal corporate governance mechanism: The case of Kuwait with reference to Malaysia

Within Kuwaiti corporate governance as an internal system, this thesis provides a practical solution to mitigate the inherited agency problem between major and minority shareholders in Kuwaiti companies. The solution concerns forming a minority watchdog group to encourage shareholder activism, promoting the efficiency of corporate governance practices in Kuwait. The examination of shareholder activism in Kuwait illuminates five standpoints. First, it addresses the obstacles to shareholder activism in Kuwait from different viewpoints. Most importantly, the viewpoint concerns the socio-cultural situation in Kuwait. This discussion illuminated that the culture of shareholder apathy is the product of different circumstances and cultures in Kuwait, such as the limitations of litigation culture in the region, free-riding problems, shareholders’ investment approach and social norms. Second, the examination of shareholder activism in Kuwait considers the concentrated ownership structure and the classification of Kuwait CG as an insider system. Consequently, it raises the possibility that shareholder activism can function as an internal mechanism. This is believed to give a wider perspective to studies about shareholder activism. Third, it empirically evaluates the role of shareholder passivity in contributing to the low standards of corporate governance in Kuwait and suggests that promoting shareholder engagement can prevent companies from delisting from the market. Thus, it argues that shareholder activism can mitigate the agency problem in Kuwaiti companies. Fourth, this thesis claims the necessity of adopting shareholder activism in Kuwait based on the deficiency of the current internal mechanisms, which are non-executive directors, non-executive independent directors and the company’s auditor. Evaluating these mechanisms requires adopting an empirical approach because this thesis agrees with the view that evaluating the practice can only be done by an empirical approach. v Fifth, this thesis examines the extent to which shareholder activism exists in Kuwaiti-listed companies. This requires scrutinising the AGM minutes of Kuwaiti-listed companies across three financial years. This captures the genuine contemporary practices of shareholder engagements in Kuwait and suggests a threshold to classify the prevalence of shareholder activism in Kuwait based on the AGM minutes. Shareholder activism was found to be low in Kuwaiti publicly listed companies because only 10 per cent of the minutes showed some form of activism. However, the examination of the quality of the AGM minutes raises the concern that the minutes are not reliable enough to reflect the genuine level of shareholder activism in Kuwait. This will require regulators to enhance companies' disclosure in Kuwait and encourage shareholder engagement by establishing a minority shareholder watchdog group similar to the Malaysian model.