What Is a Shareholder Activist?
Let me explain to you what a shareholder activist is. As someone who's looked into this, I can tell you it's a person who uses their rights as a shareholder in a publicly-traded corporation to push for changes within or for that corporation.
Key Takeaways
- Shareholder activists are shareholders who drive changes in or for a corporation.
- These changes can cover everything from environmental issues to governance, profit distribution, internal culture, and the business model.
- They usually buy a minority stake and then use tactics like media pressure or litigation threats to start discussions and force changes.
Understanding a Shareholder Activist
You need to know that shareholder activism is how shareholders can affect a corporation's behavior by using their rights as partial owners. Different share classes give varying voting privileges along with dividend rights.
Even though minority shareholders don't handle daily operations, they have ways to influence the board and executives. This can include talking directly with managers or putting forward formal proposals voted on at annual meetings.
Activists also use aggressive tactics to push for changes. For instance, they might leverage media to highlight their demands and build pressure from other shareholders, or they could threaten lawsuits if they're not heard.
Some activists focus on social changes, like divesting from politically sensitive areas, supporting workers' rights against sweatshops, or demanding more accountability for environmental damage.
The term also applies to investors who think management is underperforming. These activists might try to take control, replace management, or force big corporate shifts.
Use of Shareholder Activism
I've seen how shareholder activism has grown over the years in terms of capital and campaigns. According to data from the Harvard Law School Forum on Corporate Governance, 2018 set records with about $65 billion deployed, 250 campaigns initiated, and the number of investors rising from 110 in 2017 to 130.
This was a modest increase from the previous record year. Activists are now crossing borders too, with 60% of campaigns targeting U.S. companies, 25% European ones, and 10% in the Asia Pacific region.
Examples of Shareholder Activists
Take Carl Icahn, one of the most notable activist shareholders in finance, alongside his roles as a businessman, investor, and philanthropist. In the 1980s, he earned a reputation as a corporate raider through actions like his hostile takeover of TWA airline in 1985.
TWA was one of the largest U.S. airlines then, along with Texaco and American Airlines. Icahn took it over and guided it away from bankruptcy over several years.
Bill Ackman sees himself as an activist investor, though some call him more of a contrarian. His notable move was a short position and major PR campaign against Herbalife in 2012.
Lately, many hedge funds are pushing for changes tied to environmental, social, and governance (ESG) concerns. Funds like Trian Partners, Blue Harbour Group, Red Mountain Capital Partners, and ValueAct Capital lead in this area.
These funds are often driven by their own investors who want companies committed to corporate social responsibility, such as addressing climate change or ensuring boardroom diversity.
For example, the NYC Pension Fund started a Boardroom Accountability Project that requires companies to disclose directors' race, gender, and skills.
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