A shareholder activist is someone who harnesses their rights as an equity owner of a publicly traded corporation to drive crucial changes within or for the organization.
Key Insights
- Change Makers: Shareholder activists lead impactful changes within corporations—whether those changes address environmental issues, governance reforms, profit distribution, internal culture, or broader business models.
- Strategic Stake: They typically buy a minority interest in a company and use a variety of tactics, from media campaigns to litigation threats, to initiate discussions and fuel change.
Understanding Shareholder Activism
Shareholder activism empowers shareholders to influence corporate behavior by leveraging their ownership stakes. Classes of shares define voting privileges and dividend entitlements, offering diverse ways for minority shareholders to affect company operations. Despite not directing day-to-day activities, activists significantly influence executive and board decisions through shareholder proposals and votes at annual meetings.
Offensive Tactics
Activists utilize several aggressive strategies to instigate change, including strategic media usage to rally broader shareholder support and enforcing accountability through potential lawsuits. These methods amplify their voices and demands, urging companies to address issues like political divestments, workers’ rights, and environmental responsibilities.
For example, activist investors may aim to improve corporate management or enforce substantial business changes, driving the company towards better practices or profitability.
The Growth of Shareholder Activism
Over recent years, the influence and reach of shareholder activism have broadened significantly. For example, record capital was deployed into activist campaigns in 2018, hitting $65 billion and seeing a spike in initiated campaigns and participating investors. Notably, campaigns have a global scope, heavily targeting U.S. and European companies.
Inspirational Examples of Shareholder Activists
Carl Icahn
Carl Icahn, a legendary figure in finance, epitomizes shareholder activism. As a “corporate raider” in the 1980s, Icahn launched high-stakes campaigns including the notable hostile takeover of TWA airline. He pushed the company out of the brink of bankruptcy and highlighted the power of well-strategized shareholder intervention.
Bill Ackman
Bill Ackman considers himself an activist (some may argue contrarian) investor. In 2012, he infamously shorted Herbalife’s stock and spearheaded a massive public relations campaign against the company, demonstrating a unique and bold approach to shareholder activism.
Hedge Funds and ESG
Recently, hedge funds like Trian Partners and ValueAct Capital have shifted towards environmental, social, and governance (ESG) activism. They pressure firms to act on climate change, boardroom diversity, and more, often pushed by their investors who insist on corporate social responsibility.
In one notable instance, the NYC Pension Fund initiated a Boardroom Accountability Project, advocating for diversity and demanding companies reveal demographics and capabilities of their directors.
Related Terms: corporate raider, hostile takeover, board of directors, environmental, social, and governance (ESG), corporate social responsibility.
References
- Harvard Law School Forum on Corporate Governance. “The Road Ahead for Shareholder Activism”.
