An activist shareholder is a shareholder that uses an equity stake in a corporation to put pressure on its management. The goals of activist shareholders range from financial (increase of shareholder value through changes in corporate policy, financing structure, cost cutting, etc.) to non-financial (disinvestment from particular countries, adoption of environmentally friendly policies, etc.).
A fairly small stake (less than 10% of outstanding shares) may be enough to launch a successful campaign. In comparison, a full takeover bid is a much more costly and difficult undertaking.
The financial form of shareholder activism has gained popularity as management compensation at publicly traded companies and cash balances on corporate balance sheets have risen. Not only are the aggregate dollars invested in the activist asset class continuing to grow, but activists are also generating significant positive attention from mainstream media by taking more sophisticated approaches to identifying their platforms and running their campaigns. Once derided as corporate raiders, shareholder activists are now the recipients of admiration for sparking change in corporate boardrooms, leading to corporate boards developing best practices for responding to shareholder activism. Activists increasingly are transitioning from outside agitators to influential insiders. In fact, some well-established activists were able to secure board seats without running a proxy contest in 2015.
Shareholder activists are making their mark on M&A activity as well--a 2015 survey of corporate development leaders found that 60% of respondents saw shareholder activism affecting transaction activity in their industry.Increasingly, however, the non-financial form of shareholder activism is affecting companies in a range of sectors. Shareholders, often with a comparatively small stake in a company, are seeking to influence the company's environmental and social performance.
Shareholder activism can take any of several forms: proxy battles, publicity campaigns, shareholder resolutions, litigation, and negotiations with management. Daniel Loeb, head of Third Point Management, is notable for his use of sharply written letters directed towards the CEOs of his target companies.
Some of the recent activist investment funds include: California Public Employees' Retirement System (CalPERS), Icahn Management LP, Santa Monica Partners Opportunity Fund LP, State Board of Administration of Florida (SBA), and Relational Investors, LLC.
Due to the Internet, smaller shareholders have also gained an outlet to voice their opinions. In 2005, small MCI Inc shareholders created an online petition to protest the MCI Inc/Verizon merger.
The practice of shareholder activism has its roots in the 17th-century Dutch Republic, with pioneering activist shareholders like Isaac Le Maire, a sizeable shareholder of the Dutch East India Company (VOC).
During the 1980s, notable activist investors such as Carl Icahn and T. Boone Pickens gained international notoriety and were often perceived as "corporate raiders" for acquiring an equity stake in publicly owned companies, like Icahn's investment in B.F. Goodrich, and then forcing companies to take action to improve value or rid themselves of rebel intruders like Icahn by buying back the raider's investment at a fat premium, often at the expense of the other shareholders.
In an Opalesque.TV interview with notable activist investor Phillip Goldstein of Bulldog Investors, Goldstein describes the role of an activist investor as that of a catalyst unlocking value in an underlying security. He goes on to say that the public perception of activist investors has changed, and this image of "corporate raiders" has dissipated.
Notable activist investors:
- Isaac Le Maire (1609)
- Carl Icahn
- Nelson Peltz
- Bill Ackman
- Daniel Loeb
- Barry Rosenstein
- Ralph V. Whitworth
- Kirk Kerkorian
- Warren Lichtenstein
- Alexey Navalny
- Stephen Mayne
- T. Boone Pickens, Jr.
- Phillip Goldstein
- Theo Botha
- David M. Webb
- Guy Wyser-Pratte
- D. Kyle Cerminara
A complete list of activist investors can be found on Fintel.
The Northwest Coalition for Responsible Investment, a coalition of religious communities and health care systems directed by Sister Judith Byron, a nun with the Adrian Dominican Sisters, introduced resolutions asking firearms manufacturers American Outdoor Brands Corporation and Sturm, Ruger & Co. and retailer Dick's Sporting Goods to report to investors regarding the steps they are taking to reduce gun violence. Ruger opposed the resolution. BlackRock, the world's largest asset manager and Ruger's largest investor, and Institutional Shareholder Services and Glass Lewis, the two most important shareholder advisory firms in the United States. supported the resolution. At Ruger's annual meeting on May 9, 2018 a majority of shareholders voted in favor and Ruger said they would heed the resolution. The Brady Campaign to Prevent Gun Violence called the vote a "first-of-its-kind victory."
New research published at The University of Oxford revisits the assumption that all shareholder activism is the same, characterizing Bill Ackman's activities with Canadian Pacific Railway as paradigmatic of "engaged activism" – which is longer term in nature with correlated benefits to the real economy, as distinct from shorter term "financial activism".
Taking an activist approach to public investing may produce returns in excess of those likely to be achieved passively. A 2012 study by London-based research firm Activist Insight showed that the mean annual net return of over 40 activist-focused hedge funds had consistently outperformed the MSCI world index in the years following the global financial crisis in 2008. Activist investing was the top-performing strategy among hedge funds in 2013, with such firms returning, on average, 16.6% while other hedge funds returned 9.5%.
Socially responsible investingEdit
Organizations such as the Interfaith Center on Corporate Responsibility (ICCR), As You Sow and Ceres use shareholder resolutions, and other means of pressure, to address issues such as sustainability and human rights.
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