Shareholder activism

Shareholder activism is a form of activism in which shareholders use equity stakes in a corporation to put pressure on its management.[1] 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 goals of shareholder activism range from financial (increase of shareholder value through changes in corporate policy, cost cutting, etc.) to non-financial (disinvestment from particular countries, etc.).[2] Shareholder activists can address self-dealing by corporate insiders, although large stockholders can also engage in self-dealing to themselves at the expense of smaller minority shareholders.[3]: 241 

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.

Activism may help to address the principal-agent problem where the management (agents) do not adequately respond to the wishes of the principals (investors) of publicly traded companies. In the 2010s, investments in the activist asset class grew, with activists receiving coverage by the media[4] and positive attention from investors.[5] Activists have typically engaged in adversarial campaigns, but have also in some cases been able to acquire board seats with a formal proxy context.[6]

Shareholder activists are making their mark on mergers and acquisitions as well – a 2015 survey of corporate development leaders found that 60% of respondents saw shareholder activism affecting transaction activity in their industry.[7] 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.[8]

Some of the recent activist investment funds include: California Public Employees' Retirement System (CalPERS),[9] Icahn Management LP, Santa Monica Partners Opportunity Fund LP, State Board of Administration of Florida (SBA),[10][11][12][13] 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/Verizon merger.

  1. ^ Reasonable Investor(s), Boston University Law Review, available at: http://ssrn.com/abstract=2579510 Archived 20 May 2020 at the Wayback Machine
  2. ^ "Activist Investor Definition". Carried Interest. Archived from the original on 25 June 2019. Retrieved 17 July 2015.
  3. ^ Cite error: The named reference :2 was invoked but never defined (see the help page).
  4. ^ Grossman, Richard; Arcano, Stephen. "Navigating Today's Shareholder Activism Landscape". Transaction Advisors. ISSN 2329-9134. Archived from the original on 8 November 2014.
  5. ^ Golden, Peter; Richter, Philip; Schwenkel, Robert; Shine, David; Sorkin, John; Weinstein, Gail. "Shareholder Activism in M&A". Transaction Advisors. ISSN 2329-9134. Archived from the original on 9 November 2014.
  6. ^ Gerber, Marc. "US Corporate Governance: Have We Crossed the Rubicon". Transaction Advisors. ISSN 2329-9134. Archived from the original on 5 June 2016.
  7. ^ Ruggeri, Chris; Kirschner, Ken; Blanchard, Tony. "Corporate Development Strategy: Thriving in your Business Ecosystem". Transaction Advisors. ISSN 2329-9134. Archived from the original on 2 February 2017.
  8. ^ Cundill, Gary (2017). "Non-financial shareholder activism: a process model for influencing corporate environmental and social performance". International Journal of Management Reviews. 20 (2): 606–626. doi:10.1111/ijmr.12157. hdl:1826/12686. S2CID 148727396.
  9. ^ Forbes: "Calpers Votes Against Jamie Dimon, Again" "Calpers Votes Against Jamie Dimon, Again". Forbes. Archived from the original on 4 March 2016. Retrieved 23 August 2017.. Retrieved 28 June 2013.
  10. ^ Eric, Finseth (2011). "Shareholder Activism by Public Pension. Funds and the Rights of Dissenting. Employees under the First Amendment" (PDF). Harvard Journal of Law & Public Policy. 34 (1): 289–366. Archived from the original (PDF) on 15 May 2013. Retrieved 28 June 2013.
  11. ^ ProxyDemocracy.org: "FLORIDA SBA" "ProxyDemocracy | Florida SBA". Archived from the original on 11 May 2013. Retrieved 28 June 2013. Retrieved 28 June 2013.
  12. ^ State Board of Administration: "SBA Corporate Governance Principles & Proxy Voting Guidelines" [1][permanent dead link‍] Retrieved 28 June 2013.
  13. ^ Harvard Law School Forum on Corporate Governance and Financial Regulation: "Florida SBA Supports Proxy Access and Advisory Firm Transparency" "Florida SBA Supports Proxy Access and Advisory Firm Transparency". April 2011. Archived from the original on 1 August 2014. Retrieved 28 June 2013. Retrieved 28 June 2013.