Shareholder activism
Shareholder activism is a form of activism in which shareholders use equity stakes in a corporation to put pressure on its management. A fairly small stake 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 to non-financial. 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.
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 agents do not adequately respond to the wishes of the principals of publicly traded companies. In the 2010s, investments in the activist asset class grew, with activists receiving coverage by the media and positive attention from investors. Activists have typically engaged in adversarial campaigns, but have also in some cases been able to acquire board seats with a formal proxy context.
Shareholder activists are influencing mergers and acquisitions. A 2015 survey of corporate development leaders found that 60% of respondents saw shareholder activism affecting transaction activity in their industry. Increasingly, non-financial forms of shareholder activism are 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. Other forms of activist campaigns include influencing divestitures, with results from Fortune 500 companies, between 2007 and 2015, suggesting these are often more successful in terms of increasing shareholder value than management led divestitures.
History
Corporations in 18th-century Europe were relatively uncommon, but in the United States they were more prevalent, starting with 300 in the 1790's and expanding by around 26,000 between 1790 and the 1860's, resulting in about 15 times the corporations in Great Britain by 1830. These early corporations contained provisions for corporate governance, including restricted charters, bylaws, prudent-mean voting rules, dividend payments, and press coverage.Between 1900 to 1950, about 1.22 "offensive" activist initiatives occurred per year, with more occurring in the 1940s and 1950s. Notable investors included Cyrus S. Eaton, Phoenix Securities Corporation, Benjamin Graham, J. Paul Getty, and Malcolm Chace. Activism was likely limited by the lack of ownership dispersion, meaning that many corporations had large shareholders with sizable blocks who already exerted significant control over the corporation.
During the 1980's activism referred to as corporate raiding emerged, before this reducing after corporations formed strategies to mitigate this. As such tactics declined, there was a rise in institutional investors, with institutional investor activism led by policy changes in locations such as the UK and continental Europe, with factors such as conflicts of interests constraining activism. By the 21st century, hedge funds and private equity funds became well placed to engage in shareholder activism. By the 2010's shareholder activism which predominantly occurred in places such as the US and Europe began to expand into Asia and quickly surpassed the amount of activism occurring in Europe.
Notable investors and funds
Notable activist investors include: Isaac Le Maire, Carl Icahn, Nelson Peltz, Bill Ackman, Daniel Loeb, Barry Rosenstein, Larry Robbins, David Einhorn, Gregg Hymowitz, Larry Fink, Christer Gardell, and Ryan Cohen.During the 1980s, 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 and then forcing them to take action to improve value or rid themselves of activist investors by buying back the raider's investment at a premium, often at the expense of other shareholders. More recently, activist investor Phillip Goldstein suggested that the role of the activist investor has moved from green mail to one of being a catalyst to unlock value in an underlying security, and says that the public perception of activist investors as "corporate raiders" has dissipated.
Activist investment funds include: California Public Employees' Retirement System, Icahn Management LP, Santa Monica Partners Opportunity Fund LP, State Board of Administration of Florida, and Relational Investors, LLC.
In 2019, notable activist investors included Starboard Value, Icahn Enterprises, Elliott Investment Management, and Third Point. In 2019, mutual funds such as Wellington Management Company had begun to show signs of activism.
Examples of activist investors in Asia include Oasis Management, David Webb, and Yoshiaki Murakami.
Outreach strategies
Activist investors advertise their message out in various ways including postal mail, websites, and social media.Proxy advisory
As of 2020, passive investors such as index funds by Vanguard as well as non-activist but still active management investors such as mutual funds play a significant role in corporate governance. These firms use proxy advisory firms such as Institutional Shareholder Services to receive recommendations on how to vote on shareholder proposals.Funding
Activist investors are often hedge funds funded by accredited investors and institutions. In 2019, institutions were demanding more upfront explanation of the activist ideas before funding, and in some cases requiring that the funds be placed into special purpose vehicles specifically for the project. Activist hedge funds, which are hedge funds that "take concentrated positions in the equity of public corporations and actively engage with corporate managers" can address the principal-agent problem and limit self-dealing by providing management with high-powered incentives to increase value.''''''Offensive versus defensive
Shareholder activism can be categorized as "offensive" or "defensive"; in the latter case, an existing shareholder attempts to correct some deficiency, while offensive activists build a position with the intention to agitate for change. Shareholders can also initiate a derivative suit to force action by the corporation. Shareholders can also engage in a securities class action but these are typically not associated with activism.Laws
In the United States, acquisition of over 5% of beneficial ownership in a company with the intention to influence leadership must be accompanied by a Schedule 13D filing; investors who do not intend to become activists may file a Schedule 13G instead.Proxy access
Historically, investors were required to mail separate ballots when trying to nominate someone of their own to the board, but beginning in 2015, proxy access rules began to spread driven by initiatives from major institutional investors, and as of 2018, 71% of S&P 500 companies had a proxy access rule.Voting
Votes for the board may be "straight" or "cumulative". In straight voting, shareholders get one vote per share on all ballot questions. In cumulative voting, a shareholder receives a general vote for however many number of ballot questions there are. The votes can then be all cast for a single ballot question, which makes it easier for minority shareholders to elect candidates. There has also been a movement toward "majority" voting, where a candidate must receive the majority of votes. Most large corporations are incorporated in Delaware due to the well-developed Delaware General Corporation Law; in Delaware, cumulative voting is optional, but exceptions exist; for example, a California-based but Delaware-registered corporation may be "pseudo-foreign" under California law and therefore have to comply with California law.Performance
Research has suggested that activist investment strategies may generate returns higher than those achieved through passive investing. A 2012 study by Activist Insight found that the mean annual net return of more than 40 activist-focused hedge funds consistently outperformed the MSCI World Index in the years following the 2008 financial crisis.Activist investing continued to draw attention in subsequent years. In 2013, it was reported as the top-performing hedge fund strategy, with activist funds earning average returns of 16.6%, compared to 9.5% for the hedge fund industry overall.
Research and statistics
Shareholder activism directed at both European and American companies has been surging. A 1996 study found that larger firms with higher institutional holdings made firms more likely to be targeted by activist investors. Researchers also try to understand what makes company a desirable target for an activist investor. Since the late 2010s scholars and practitioners have started using machine learning methodologies to predict both targets and activists.As of 2018, an average of 272 activist campaigns were initiated each year in the United States, including 47 proxy contests. The trend has also been global in scope; approximately 47% of companies targeted by activist investors during this period were located outside the United States, with Europe and Asia seeing increases in the CAGR of such campaigns of over 40%, between 2016 and 2020, companies in Australia, Argentina, Brazil and Canada seeing increases of over 20%, compared to activist campaigns in the US increasing by 3%.
In H1 2025, the business sectors that experienced the highest volume of shareholder activism campaigns globally were Industrials, Technology and Healthcare, with Industrials most targeted in APAC, Technology most targeted in the US and the Healthcare sector most targeted in Europe.