What is a shareholder activist?

A shareholder activist is a person who makes an effort to use their rights as a publicly listed company’s shareholder to influence the company or its policies.

Understanding a Shareholder Activist

By using their rights as co-owners, shareholders may influence a company’s actions via shareholder activism. Different classes of shares provide different dividend entitlements and voting rights.

Even if they don’t oversee daily operations, minority shareholders have several methods to affect the decisions made by a corporation’s board of directors and top management. These techniques include having discussions with management or submitting formal motions that are put to a vote at an annual meeting of shareholders.

To compel improvements, shareholder activists may use a range of aggressive strategies. For instance, they might strategically utilize media outlets to spread the word about their demands and increase pressure from other shareholders. They can sue businesses if they are not given a voice.

Shareholder activists address various concerns, such as social change, which calls for divesting from politically sensitive regions of the globe, more support for workers’ rights (sweatshops), and increased responsibility for environmental damage.

However, this phrase might also refer to investors who believe a company’s management is performing poorly. This group of activist investors often tries to take over the business, fire the management, or impose significant internal changes.

Employing Shareholder Activism

The amount of money invested in shareholder activism has grown over time, as has the number of initiatives launched. As to the Harvard Law School Forum on Corporate Governance, shareholder activists had an unprecedented year in 2018. Almost $65 billion in cash was invested; 250 campaigns were started, and 130 investors joined in 2018, up from 110 in 2017.1. These numbers are another one for the record books, showing a “modest” increase from the prior year. Additionally, shareholder activists are conducting campaigns internationally. According to the same survey, 60% of efforts targeted American businesses, 25% targeted European businesses, and 10% targeted Asian Pacific businesses. 1 Shareholder Activist Examples.

In addition to his activities as a businessman, conventional investor, and philanthropist, Carl Icahn is one of the most well-known activist shareholders in the financial sector. Mr. Icahn gained a solid reputation as a “corporate raider” throughout the 1980s.

This resulted, among other things, from his aggressive 1985 purchase of TWA Airlines. TWA was one of the biggest airlines in the country at the time, along with American Airlines and Texaco. Over several years, Mr. Icahn skillfully assumed control of the business and guided it away from the verge of bankruptcy.

Similarly, Bill Ackman views himself mainly as a contrarian investor, yet he still identifies as an activist. In 2012, Ackman took a brief stance and launched a massive PR effort against Herbalife, which became one of his most well-known views.

Unlike Mr. Icahn and Mr. Ackman, several hedge funds have advocated for change lately in response to their partners’ environmental, social, and governance (ESG) concerns. Several significant funds, including ValueAct Capital, Red Mountain Capital Partners, Blue Harbour Group, and Trian Partners, have prioritized ESG.

Investors who want to own businesses committed to corporate social responsibility are pushing some of these funds. This obligation might shape environmental problems like climate change or governance concerns like boardroom diversity.

For example, the NYC Pension Fund started a Boardroom Accountability Project concerning board diversity that compels corporations to publish the color, gender, and skills of their directors.

Conclusion

• Shareholder activists are shareholders of firms that bring about change inside or for a company.
• These changes encompass a vast spectrum, from environmental concerns to governance, profit distribution, and a corporation’s internal culture and business strategy.
• Typically, shareholder activists acquire a minority investment in a business and then use a range of strategies, such as lawsuit threats and public attention, to force a discussion and effect change.