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Markkula Center for Applied Ethics

Shareholder Activism: Boon or Bane?

Putting its Impact into Context

Ann Skeet

Summary of a panel at the Business Ethics Partnership featuring Bill Anderson, Ned Barnholt, Warren S. de Wied, and Kirk O. Hanson 

The History of Activism

Shareholder activism has its roots in hostile takeover bids of the 1980s, when corporate raiders were viewed negatively by the media and shareholders.

By the 1990s, thinking about the best structure for companies was shifting to reflect the idea that shareholders should have more of a say over companies' destinies.

Today, the activists are massive corporations in their own right. Today, it is often the case that activist funds are worth more than the companies they are targeting.

The Takeaways

The amount of capital available to shareholder activists has gone up dramatically, including from asset classes with a lot of money, such as pension funds.

Institutional investors are working with activists at an increasing rate.

The campaigns are comprehensive. Activist shareholders now hire investment banks and the best law firms, outpacing the resources individual companies apply to the same analysis.

The current wave of change is focused on boards. Shareholders want someone who is an investor on the board. It's becoming best practice to welcome someone with investing experience onto the board, in part to benefit from their perspective but also to preempt activist demands for an investor to join the board.

Quotes Anonymous

"A lot of people defer to ISS." (ISS is the largest of the activist proxy advisory firms)

"A big concern is that companies and activists are fundamentally operating from the perspective of a different timeframe."

"We like to build value over a long period of time – to invest in a technology that may not have a payoff for 10 years, or to invest in research and development."

"Typically the entry point for activists is sloppy corporate governance."

"I see a lot of really good people that don't want to be on boards anymore."

Nov 30, 2015