DEFINITION of Hands-On Investor
A hands-on investor is one who holds a large portion of a company's shares and takes an active role with management. A hands-on investor can also be called a majority shareholder, or activist shareholder. Hands-on investors use their ownership stake in a firm to become actively engaged in the company’s decision-making process and attempt to change the way the company operates.
BREAKING DOWN Hands-On Investor
A hands-on investor could be a large-scale stockholder who also actively participates in how a company is managed. This can be done through proxy voting, electing board members or direct engagement with the company’s management.
The majority shareholders are usually hands-on investors and have a great influence on the company's management decisions. This may or may not lead to tension with company managers, who typically prefer not to be directed by single shareholders, especially when such shareholders do not have the same level of experience or business acumen as company management.
Hands-On Investors and Activist Investors
Large asset managers like BlackRock and Fidelity hold enough shares of companies through their index funds to engage them as hands-on investors, but they generally choose not to. Large pension funds, like the California Public Employees’ Retirement System or the New York State Common Retirement Fund, hold enough shares in their equity portfolios and sometimes seek to engage management directly or through proxy voting.
Some firms, including some active management equity firms and some hedge funds and private equity funds, identify as activist investors.
An activist shareholder is one who 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 of holdings in particular countries, adoption of environmentally or socially friendly policies, etc.).
A fairly small stake, less than 10 percent 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. Some investors that regularly operate as activists include Icahn Management, Relational Investors and Pershing Square Capital Management.
Many hands-on or activist investors often believe they are unlocking hidden value in the companies they pursue. One recent example is Starboard Value’s 2014 engagement with Darden Restaurants, parent company of Olive Garden. In a now-famous 300-page report presented to the media, Starboard’s Jeff Smith pilloried Olive Garden for giving too many breadsticks to diners and not salting the pasta water.
Others hands-on investors, 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.