Welcome to a time when we can use our money to have positive affects around us. Shareholder activism is a term that refers to shareholders who use their ownership stake in the company they are invested in to influence management policy. Shareholders are often activists because of the power they have through their holdings, and shareholder activism can take many forms depending on the type of information an activist wants to get across. Some notable examples of what a shareholder activist is includes Louis Brandeis, Carl Icahn, and Nelson Peltz.
- The First Recorded Act of Shareholder Activism
- Is Shareholder Activism considered Beneficial?
- 20th Century Notable Shareholder Activists
- How Activist Investors have used their Power as Shareholders
- 3 Tools for Shareholder Activists
- 3 Notable Present Day Shareholder Activists
- The 8 top shareholder activists and what they specialize in:
- Large Institutional Shareholder Activism
- Shareholder Activism vs Social Activism
- What Does Shareholder Activism have to do with ESG?
- How are Activist Shareholders Affecting Corporate Policy?
- What effect do you think shareholder activism has had on companies?
- What is the future of shareholder activism going forward?
- Shareholder Activism Summary
- Caveats and Disclaimers
The First Recorded Act of Shareholder Activism
The Dutch East India Company was a trading company that was originally established in 1602 to trade with the Dutch East Indies. It became popular and its shares were traded on various exchanges around Europe, but it eventually began experiencing financial problems due to corruption among some of the leaders of the shareholder meetings, including bribery and embezzlement. And this is what prompted the first shareholder activist: Isaac Le Maire.
Isaac Le Maire is often considered to be the original shareholder activist because in 1608 he led the first recorded shareholder activism when he protested against corruption in the Dutch East India Company. He then began buying shares in the company and eventually was given a board position where he could help implement his changes.
Is Shareholder Activism considered Beneficial?
Shareholder activism is generally considered to be beneficial for both shareholders and management teams that are influenced by shareholder activists. This can be seen not only historically, but also in the present with high-profile shareholder activists such as Carl Icahn and Dan Loeb.
20th Century Notable Shareholder Activists
20th Century shareholder activists began in the early 1900s when Louis Brandeis and others used their leverage as stockholders to influence corporate management policy, even though they weren’t affiliated with the company. Today there are many forms of activism that shareholders can use on large companies including proxy voting campaigns, shareholder proposals, and shareholder activism.
How Activist Investors have used their Power as Shareholders
Many shareholders choose to be activists because they believe that it is the only way for them to get management of a company with whom they are invested in to listen or act on what matters most. In this regard, shareholder activism can lead companies towards better performance by holding management accountable.
3 Tools for Shareholder Activists
Shareholder activists have many tools that they can use, and it largely depends on the type of shareholder activism being used. Some of these include proxy voting campaigns, shareholder proposals, and direct approaches with management teams.
- Proxy Voting Campaigns – Proxy voting campaigns are often about amending a company’s bylaws to change governance procedures or remove board members. They can also be used to influence the election of new board members by asking shareholders who they wish to vote for.
- Shareholder Proposals – A shareholder proposal is when a shareholder asks that an item or items on the agenda at their annual meeting, and this usually happens through mailing in proxies. If management allows it, there are a number of shareholder proposals that shareholders can submit, including ones related to company policy or changing an organization’s charter.
- Direct Approaches with Management Teams – For the most part shareholder activism is when a shareholder takes their case directly to management in order for them to address it immediately instead of waiting until the next shareholder meeting. This could be done through phone conversations, face-to-face meetings, and other forms of contact to get the point across.
3 Notable Present Day Shareholder Activists
Some notable shareholder activists include Carl Icahn, Dan Loeb, and Nelson Peltz who are known for their campaigns against major corporations.
- Carl Icahn – Carl Icahn is an American business magnate with a diversified portfolio of companies that he invests in often by buying large amounts of stock to influence management policies at these companies. He has been involved in high-profile activism over the years including his involvement with Trans World Airlines where he took it over and was chairman for a time.
- Dan Loeb – Dan Loeb is an American business magnate who often invests in companies that are underperforming or have the potential to do better. He has been active as an activist investor since the early 2000s, and one of his first targets was the advertising company, Yahoo!
- Nelson Peltz – Nelson Peltz is an American business magnate and founder of Trian Fund Management. He has been involved in activism for decades including his involvement with DuPont & Company where he worked to shift their focus by investing more capital into research and development. Today Nelson Peltz continues to be an activist shareholder and has been involved in many large-scale fights with companies like Mondelez International.
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The 8 top shareholder activists and what they specialize in:
- Carl Icahn – refinery companies, casinos, energy, food & beverage
- Nelson Peltz – conglomerate diversification
- Daniel Loeb – media/communications (internet) and retail (consumer goods)
- Bill Ackman – consumer products and services
- Barry Rosenstein – health care and financial companies
- Paul Singer – distressed debt/bankruptcy situations
- Jeffrey Ubben – technology, media & telecom
- Mario Gabelli – food products (consumer goods) and utilities.
Large Institutional Shareholder Activism
Large institutional shareholder activism is when an institution buys shares in a public company and then uses its power to influence the management of that business. This can include changing board members, asking for changes to certain policies, or taking legal action against them if necessary. There are many reasons why institutions use this method including trying to increase returns on investment by influencing companies to make better business decisions.
Large institutional investors, such as pension funds, universities endowments and family offices, have increasingly been using shareholder activism to try and get a seat at the boardroom table. In doing so, they are hoping to influence how companies are run, including pushing for changes that could increase shareholder value.
Large institutional investors have become more involved in the process of engaging with boards and management teams than ever before which has resulted in their ability to affect change becoming harder because there is now increased scrutiny on them as well. According to one study though it was found that their efforts were successful around 50% of the time and that they averaged a return on investment of about 15%.
Shareholder Activism vs Social Activism
While the goal of shareholder activism is to affect change for both shareholders and companies at large, it can be different than social activist movements. Social activists do not necessarily have a personal gain in mind when fighting against things like racism or other forms of discrimination. Shareholder activism does involve gaining something through these changes whether that’s money back on investment, higher stock prices, or other things.
Shareholder activism can also be different than shareholder politics which is when shareholders work together to try and influence the outcome of board elections in hopes that they gain more power over management decisions at a company. This form of shareholder activism can include coalitions being formed between individuals with large amounts of shares who are looking for representation on boards and those who want to see certain changes happen at the company.
While shareholder activism and social activist movements can share some of the same goals, they are very different in how they work towards these objectives as well as their reasons for doing so. For both parties, it’s important to understand what methods will be most effective when trying to achieve specific results including knowing when it’s beneficial to use shareholder activism or social activist movements.
What Does Shareholder Activism have to do with ESG?
Shareholder activism can have a lot to do with ESG metrics in various ways. For instance, some shareholder activists are looking for businesses that invest in corporate social responsibility or sustainability measures as well. Investors want companies who follow high standards of environmental and social responsibility so they will purchase shares hoping to influence change at the company which could include bringing up ESG issues at shareholder meetings.
Shareholder activists can also be interested in ESG issues when they are trying to affect change by filing lawsuits against companies who aren’t following high standards of corporate responsibility or environmental protection regulations. This could include things like speaking out publicly about how these businesses should be held accountable for their actions as well as taking legal action which might result in higher costs for these companies if they lose the lawsuit.
How are Activist Shareholders Affecting Corporate Policy?
Activist shareholders have been successful in affecting change through various ways including being able to remove board members from their position, nominating people for the board they believe will be more helpful towards achieving expected changes and having a say in who is nominated as new officers or directors of a company.
If a shareholder activist is trying to make sure that a company is more transparent about their business practices or that they are following environmental protection regulations, then one of the most effective ways to do this is by nominating someone who shares these interests for a board position at the company. By having an ally on the inside, shareholder activists can make sure that important changes will be made and any issues needing attention will receive it in a timely manner.
What effect do you think shareholder activism has had on companies?
Shareholder activists have been successful in having a big impact on businesses around the world with some of the most notable changes including more transparency, improved employee benefits and better working conditions, increased focus on sustainability initiatives, etc.
With investors becoming increasingly concerned about environmental protection issues as well as how businesses are treating their workers or the communities they operate in, shareholder activism is expected to continue being an effective way for them to have a say in what policies and initiatives these companies follow.
What is the future of shareholder activism going forward?
Shareholder activism will continue to be a powerful way for investors and other stakeholders in the business world to influence policy at major corporations. As we see more changes regarding responsible environmental policies, increased transparency about how companies operate, and better treatment of employees by businesses around the globe, shareholder activism is likely going to play an important role in achieving these reforms.
Shareholder Activism Summary
In summary, shareholder activism is a way for investors and other stakeholders to influence what policies and initiatives major corporations follow by having a say in who is nominated as new officers or directors of the company. It has been successful at achieving positive changes such as improved corporate social responsibility, increased transparency about business practices, better treatment of employees, etc. And that shareholder activism will likely continue to be an effective way for investors and other stakeholders to influence policy at major businesses.
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Caveats and Disclaimers
We have covered many topics in this article and want to be clear that any reference to, or mention of target companies, managing partner, campaigns focused, energy sector, top activist investors, shareholder rights, bill ackman, proxy contest, successful campaign, largest shareholder, icahn enterprises, management teams, research firm, canadian pacific railway, corporate raider, two board seats, excess cash, outstanding shares, starboard value, pershing square capital, board seat, public companies, held positions, options trading, exchange commission, financial times, gcp applied technologies, companies, company, icahn lift, york times, shareholder activist, institutional investor, equity stake, activist insight, third point, inclusive capital partners, private company, activist investor, sachem head capital management, securities and exchange commission, takeover bid, shareholder value, wall street journal, arbitrage and options trading, business insider, corporate governance, notable investors, board seats, hostile takeover, point partners, carl icahn, pershing square capital management, activist shareholders, new york, chief executive, company’s board, accredited investors, private equity in the context of this article is purely for informational purposes and not to be misconstrued with investment advice or personal opinion. Thank you for reading.
Research & Curation
Dean Emerick is a curator on sustainability issues with ESG The Report, an online resource for SME’s and Investment professionals focusing on ESG principles. Their primary goal is to help middle market companies automate Impact Reporting with ESG Software. Leveraging the power of AI, machine learning and AWS to transition to a sustainable business model. Serving clients in the United States, Canada, Uk, Europe and the global community. If you want to get started, don’t forget to Get the Checklist! ✅