What is a Shareholder Activist?

A shareholder activist is a person who attempts to use his or her rights as a shareholder of a publicly-traded corporation to bring about change within or for the corporation.

Some of the issues addressed by shareholder activists are for social change, requiring divestment from politically sensitive parts of the world — for example, greater support of workers' rights (sweatshops) and/or more accountability for environmental degradation. But the term can also refer to investors who believe that a company's management is doing a poor job. This class of activist investors often attempt to gain control of the company and replace management or force a major corporate change.

Understanding Shareholder Activists

Shareholder activism is a way that shareholders can influence a corporation's behavior by exercising their rights as partial owners. Classes of shares allow for distinct voting privileges, in addition to dividend entitlements. While minority shareholders don't run day to day operations, several ways exist for them to influence a company’s board of directors and executive management actions. These methods can range from dialogue with managers to formal proposals, which are voted on by all shareholders at a company's annual meeting.

Shareholder activists also employ a variety of offensive tactics to force changes. For example, they might make strategic use of media channels in order to publicize their demands and prompt greater pressure from other shareholders. They may also threaten companies with lawsuits if they are not allowed to have their say.

Over the years, shareholder activism has increased in total capital deployed as well as number of campaigns mounted. According to the Harvard Law Review, 2018 was a record year for shareholder activists. Approximately $65 billion capital was deployed across 250 campaigns by 130 activists. Those figures represented a "modest" increase in figures from the previous year, another one for record books. Shareholder activists are also reaching out across borders to conduct campaigns. The same report noted that 60% of campaigns were conducted in the United States while 30% were in Europe and 10% in Asia.

Key Takeaways

  • Shareholder activists are people who bring about change within or for a corporation. These changes span a vast range, from environmental concerns to governance or profit distribution to the internal culture and business model of a company.
  • Shareholder activists typically buy up a minority stake in a company and, subsequently, employ a variety of tactics, from media pressure to litigation threats, to force a conversation and bring about change.

Examples of Shareholder Activists

Carl Icahn is one of the financial industry’s most notable activist shareholders, along with his work as a businessman, traditional investor, and philanthropist. In the 1980s, Mr. Icahn developed a strong reputation as a “corporate raider.” This stemmed from his hostile takeover of TWA airline in 1985, among other milestones. Along with Texaco and American Airlines, TWA was one of the nation’s largest airlines at the time. Mr. Icahn successfully took over the company, steering it away from the brink of bankruptcy over a multi-year period.

Similarly, Bill Ackman considers himself an activist investor (although some would deem him primarily a contrarian investor). One of Ackman’s most high-profile positions was his short position and issuance of an enormous public relations campaign against the company Herbalife in 2012.

In contrast with Mr. Icahn and Mr. Ackman, many hedge funds have been recently pushing for change, related to their partners’ environmental, social and governance (ESG) concerns. Trian Partners, Blue Harbour, Red Mountain Capital, and ValueAct are among top funds, which have prioritized ESG in various forms. Some of these funds are being pushed by their own investors, who seek to own firms that demonstrate commitment to corporate social responsibility. This responsibility can take the form of environmental concerns such as climate change or governance concerns such as board room diversity.

For example, the NYC Pension Fund began a Boardroom Accountability Project about board diversity which requires companies to disclose the race, gender, and skills of their directors.