Shareholder Activism

What Is Shareholder Activism?

Shareholder activism is the practice of shareholders using their voting power to influence the actions and policies of a company.

Activist shareholders may push for changes in management, strategy, or operations, with the goal of increasing the company’s value and performance.

Activists may also push for environmental, social, or governance (ESG) reforms at the company.

Key Takeaways – Shareholder Activism

• Shareholder activism is the practice of shareholders exerting influence over the management and direction of a company.
• Activist shareholders often push for changes such as cost-cutting, leadership changes, and strategic shifts.
• Activism can be conducted through private negotiations or public campaigns, and can be directed at companies of any size.
• Activism has become increasingly common in recent years, driven in part by the growth of index funds and other passive investment strategies that may create more opportunity for active, tactical strategies.
• The success of activism can vary depending on the specific circumstances of a campaign, but it can lead to significant changes at target companies.

Tactics of Activist Shareholders

Activist shareholders can take various forms, such as individual investors, hedge funds, or institutional investors.

They may engage with a company through proxy fights, where they try to gain control of the board of directors by gaining the support of other shareholders.

They may also use their voting power to push for changes at annual shareholder meetings.

Activist shareholders may also use the media or public relations campaigns to build support for their cause and pressure the company to make changes.

Some activists may also file lawsuits or take other legal action to try to force change at the company.

Activist investors can be seen as a force for positive change, pushing companies to improve performance and increase value for shareholders. However, some critics argue that activist investors are primarily interested in short-term gains and may not be considering the long-term health of the company.

In recent years, there has been a growing trend of activist investors focusing on ESG issues, such as climate change and social inequality.

This has led to an increase in the number of companies adopting sustainable practices and policies. Activist investors are also focusing on matters like diversity and inclusion in the board of directors.

Overall, shareholder activism is a way for investors to use their voting power to influence the actions and policies of a company, with the goal of increasing the company’s value and performance.

The approach and impact of activism varies, so it’s hard to lump everything into a box, as some investors may be focused on short-term gains, while others may be focusing on long-term sustainable growth.

Use of Shareholder Activism

Shareholder activism is the practice of shareholders using their ownership rights to influence the behavior and direction of a company.

The purpose of shareholder activism is to enhance the value of the company for all shareholders by influencing management decisions and corporate governance practices.

Activist shareholders may engage in activities such as proposing and voting on corporate resolutions, calling for board of director elections, and pushing for changes in company strategy or operations.

They may also push for the sale or merger of the company, or the distribution of dividends and share buybacks.

Activists may be individual shareholders, investment firms, or other groups with a financial stake in the company.

Forms of Shareholder Activism

The following are different types of shareholder activism:

Shareholder proposals

Shareholders can submit proposals for a vote at the company’s annual meeting, calling for changes in corporate governance or specific business practices.

For example, a shareholder might propose that the company adopt environmental or social sustainability standards.

Proxy fights

Shareholders can also try to influence the composition of a company’s board of directors by proposing their own candidates for election, or by opposing the company’s nominated candidates.

This is known as a proxy fight.

Letter writing campaigns

Shareholders can also use letter-writing campaigns to voice their concerns to the company’s management and board of directors.

This can include concerns about financial performance, executive compensation, or ethical or social issues.

Shareholder lawsuits

Shareholders can also bring legal action against a company or its board of directors if they believe their rights have been violated.

Divestment

Shareholders can also choose to sell their shares in a company to protest the company’s actions or policies.

This is known as divestment.

Activist funds

Activist funds are hedge funds that actively purchase large positions in companies and then attempt to exert influence to change the direction of the company.

What is Shareholder Activism?

FAQs – Shareholder Activism

Is shareholder activism good or bad?

Shareholder activism can be viewed as both good and bad, depending on one’s perspective and the specific circumstances of the case.

Some argue that shareholder activism can be beneficial for companies and their shareholders.

Activists can bring new ideas and perspectives to a company, and can push for changes that improve financial performance, increase transparency and accountability, and align the company’s practices with societal values.

Activists can also help to hold management and boards of directors accountable to shareholders and can help to ensure that the interests of shareholders are taken into account in decision-making.

On the other hand, some argue that shareholder activism can be disruptive and can lead to short-term thinking at the expense of long-term growth and stability.

Activists may pressure companies to make changes that prioritize short-term gains over long-term strategic planning, which can be detrimental to the company’s overall health.

Activists may also be motivated by their own financial interests rather than the interests of the company and its shareholders as a whole.

It’s important to note that not all forms of shareholder activism are created equal, some forms may have more positive than negative impact and vice versa.

Moreover, the effectiveness of shareholder activism can vary depending on the specific company and the nature of the activism.

What do activist shareholders do?

Activist shareholders are investors who actively engage with a company’s management and board of directors to bring about changes they believe will improve the company’s performance and increase its value.

This can include proposing changes to strategy, advocating for the sale or spin-off or divestiture of certain business units, pushing for changes in the composition of the board of directors, and demanding a higher dividend or share buyback program.

Activist shareholders may also push for corporate governance changes, such as increased transparency and accountability, and may take their concerns to the media or to other shareholders to build support for their proposals.

How do shareholder activists make money?

Shareholder activists make money by buying shares of a publicly traded company and then using their ownership stake to influence the actions of the company’s management and board of directors.

Activists may push for changes such as cost-cutting, divestitures, or the sale of the entire company.

They may also propose and advocate for specific board candidates.

If the activist’s efforts are successful and the company’s stock price increases, the activist can then sell their shares for a profit.

Activists may also earn fees for their consulting and advisory services.

How successful are shareholder activists?

The success of shareholder activists can vary widely depending on the specific situation and the goals of the activist.

Activists may be successful in achieving some or all of their goals, such as getting a company to improve its financial performance or change its strategic direction.

However, activists may also be unsuccessful in achieving their goals, and their efforts may even lead to a decline in the company’s stock price.

Some studies have found that companies targeted by activists tend to outperform their peers in the short term after the activist’s involvement, although the long-term performance tends to be mixed.

Activists can also be successful in bringing attention to undervalued or underperforming companies, which can lead to positive changes in the company and an increase in the stock price.

In some cases, activists might also be successful in getting the company to take steps to improve governance, even if they don’t achieve their specific financial goals.

It is important to note that not all activists are the same, some are short term oriented and focus mainly on quick financial gains, while others are more long-term oriented and try to push for changes that will benefit the company in the long run.

Activists might also have different levels of aggressiveness in their approach, which can also affect the outcome of their campaign.

Why do companies deal with shareholder activism?

Companies deal with shareholder activism because shareholders may attempt to influence the company’s direction and operations through various tactics such as proposing and voting on resolutions, nominating board members, and publicly advocating for changes to the company’s strategy.

Shareholder activism can be a way for shareholders to hold management accountable and increase the value of their investments.

Additionally, companies may engage with activist shareholders to avoid a prolonged and costly public battle.

What is the role of shareholder activism in corporate governance?

Shareholder activism refers to actions taken by shareholders to influence the direction and management of a company, typically with the goal of increasing the company’s financial performance and shareholder value.

This can include activities such as proposing and voting on resolutions at annual meetings, engaging in dialogue with management and the board of directors, and in some cases, organizing proxy fights to elect new board members.

The role of shareholder activism in corporate governance is to hold management and the board accountable to shareholders, and to ensure that the company is being run in the best interests of its owners.

What is a hostile takeover?

A hostile takeover refers to a situation in which an acquiring company, referred to as the “bidder,” makes a public offer to purchase a controlling interest in another company, referred to as the “target,” without the support or approval of the target’s management or board of directors.

Hostile takeovers are typically characterized by a lack of cooperation between the two companies. It may involve tactics such as proxy fights, tender offers, or lawsuits.

The goal of a hostile takeover is for the bidder to gain control of the target company, and potentially make changes to its management, strategy, or operations.

What is a proxy fight?

A proxy fight is a type of hostile takeover attempt in which the acquiring company, or “activist shareholder,” seeks to gain control of a target company by convincing shareholders to vote in favor of new board members or other corporate actions that would align the interests of shareholders with those of the activist.

This is typically done by the activist shareholder soliciting proxy votes from other shareholders, in an effort to gain a majority of the votes at the company’s annual meeting or a special meeting called for the purpose of the proxy fight.

A proxy fight can also refer to a situation where a group of shareholders bands together to push for changes in a company’s management, strategy, or operations by voting on certain proposals.

The goal of a proxy fight is to gain control of the company’s board of directors, and potentially influence the company’s management and direction.

Conclusion – Shareholder Activism

Shareholder activism refers to the actions taken by investors to influence the management and direction of a company.

Activist shareholders are typically institutional investors or wealthy individuals who purchase a significant stake in a company and then use their position to push for changes they believe will increase the company’s value.

This can include proposals for changes in strategy, the sale or spin-off/divestiture of certain business units, changes in the composition of the board of directors, and demands for higher dividends or share buyback programs (to return cash to shareholders).

Activist shareholders may also push for corporate governance changes, such as increased transparency and accountability.

They can also file shareholder proposals and attend annual meetings to express their views.

Activist shareholders may also take their concerns to the media or to other shareholders to build support for their proposals.

Shareholder activism has become more prevalent in recent years as investors have become more willing to take an active role in the companies they invest in, and believe the element of “process” it’s a way to unlock value.