Shareholder activism

Corporations in 18th-century Europe were privileged and relatively uncommon, but in the United States became much more common, starting with 300 in the 1790s and expanding by around 26,000 between 1790 and the 1860s, resulting in about 15 times the corporations in Great Britain by 1830.{{Citation|last1=Wright|first1=Robert E.|title=Corporate Governance and Stockholder/Stakeholder Activism in the United States, 1790–1860: New Data and Perspectives|date=2011|work=Origins of Shareholder Advocacy|pages=231–251|editor-last=Koppell|editor-first=Jonathan G S|publisher=Palgrave Macmillan US|language=en|doi=10.1057/9780230116665_11|isbn=978-1-349-29072-7|last2=Sylla|first2=Richard}} These early corporations contained various provisions for corporate governance, including restricted charters, bylaws, prudent-mean voting rules,{{Cite journal|last=Dunlavy|first=Colleen A.|date=21 February 2007|title=Social Conceptions of the Corporation: Insights from the History of Shareholder Voting Rights|journal=Washington and Lee Law Review|volume=63|page=1347| language=en|location=Rochester, NY|ssrn=964377}} dividend payments, and press coverage.

From 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 (10 to 20% of total shares) who already exerted significant control over the corporation.

Notable activist investors include: Isaac Le Maire (1558–1624),Frentrop, Paul (2009). The First Known Shareholder Activist: The Colorful Life and Times of Isaac le Maire (1559–1624), in Frentrop/Jonker/Davis 2009, 11–26 Carl Icahn,[https://www.carriedin.com/activist-investors/ Carried Interest: "Activist Investors"] {{Webarchive|url=https://web.archive.org/web/20150725141030/https://www.carriedin.com/activist-investors/ |date=25 July 2015 }}. Retrieved 6 May 2015. Nelson Peltz (Trian Partners), Bill Ackman (Pershing Square), Daniel Loeb (Third Point Management), Barry Rosenstein, Larry Robbins (Glenview),{{Rp|19}} David Einhorn, Gregg Hymowitz (EnTrust Global),{{cite web |last1=Chung |first1=Juliet |last2=Benoit |first2=David |title=The Man Behind Activist Investors' Biggest Bets |url=https://www.wsj.com/articles/the-man-behind-activist-investors-biggest-bets-1500037200 |publisher=WSJ |access-date=17 May 2020 |date=14 July 2017 |archive-date=17 July 2020 |archive-url=https://web.archive.org/web/20200717033341/https://www.wsj.com/articles/the-man-behind-activist-investors-biggest-bets-1500037200 |url-status=live }} Larry Fink (BlackRock),{{cite web | url=https://www.youtube.com/watch?v=eTDdDgr-xYo | title=Larry Fink CEO - "You have to Force Behaviours, at Black Rock we are Forcing Behaviours" | website=YouTube | date=16 September 2023 }} Christer Gardell (Cevian Capital), and Ryan Cohen.{{cite web |last1=Trentmann |first1=Nina |last2=Maurer |first2=Mark |title=GameStop CFO Was Forced Out as Activist Investor Pushes New Strategy |url=https://www.wsj.com/articles/gamestop-cfo-was-forced-out-as-activist-investor-pushes-new-strategy-11614214793 |publisher=WSJ |access-date=19 March 2021 |date=24 February 2021 }}

During the 1980s, activist investors such as Carl Icahn and T. Boone Pickens gained international notoriety{{citation needed|date=January 2020}} and were often perceived as "corporate raiders" for acquiring an equity stake in publicly owned companies, like Icahn's investment in B.F. Goodrich, and then forcing companies to take action to improve value or rid themselves of rebel intruders like Icahn by buying back the raider's investment at a fat premium, often at the expense of the other shareholders.{{citation needed|date=January 2020}} 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.{{cite web|url=http://www.opalesque.tv/youtube/Phil_Goldstein/1|title=Phil Goldstein: The Bulldog's passion for value investing|date=21 January 2011|website=Opalesque TV|access-date=15 July 2018|archive-date=6 July 2018|archive-url=https://web.archive.org/web/20180706161751/http://www.opalesque.tv/youtube/Phil_Goldstein/1|url-status=live}}

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.{{Cite news|date=15 March 2019|title=Mutual funds start to put their mouth where their money is|language=en|work=Reuters|url=https://www.reuters.com/article/us-usa-companies-funds-analysis-idUSKCN1QW1C8|access-date=7 September 2020|archive-date=31 May 2019|archive-url=https://web.archive.org/web/20190531135620/https://www.reuters.com/article/us-usa-companies-funds-analysis-idUSKCN1QW1C8|url-status=live}}

Examples of activist investors in Asia include Oasis Management.{{Cite web |last=Barnes |first=Oliver |date=October 15, 2023 |title=Activist Oasis stands to net £40mn profit from Wagamama owner sale |url=https://www.ft.com/content/ec51f634-59dd-495f-81b1-e4ced30c2d26 |access-date=2024-01-21 |website=www.ft.com}}

Activist investors advertise their message out in various ways including postal mail, websites, and social media.{{Cite web|url=https://www.sullcrom.com/files/upload/SC-Publication-SandC-MnA-2018-US-Shareholder-Activism-Analysis.pdf|title=Review and Analysis of 2018 U.S. Shareholder Activism|publisher=Sullivan & Cromwell|url-status=live|archive-url=https://web.archive.org/web/20191229202934/https://www.sullcrom.com/files/upload/SC-Publication-SandC-MnA-2018-US-Shareholder-Activism-Analysis.pdf|archive-date=29 December 2019|access-date=28 February 2020}}

As of 2018, there had been an average of 272 activist campaigns per year in the United States, including 47 proxy contests. About 47% of targeted companies were outside of the United States.{{Cite web|url=https://www.srz.com/resources/the-activist-investing-annual-review-2019.html|title=The Activist Investing Annual Review 2019|publisher=Schulte Roth & Zabel|url-access=registration|url-status=live|archive-url=https://web.archive.org/web/20190509214151/https://corpgov.law.harvard.edu/wp-content/uploads/2019/02/AIAnnual_Review2019.pdf|archive-date=9 May 2019}}

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.

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.{{Cite news|date=30 July 2019|title=Karmic reckoning? Investors in activist hedge funds agitate for change|language=en|work=Reuters|url=https://www.reuters.com/article/us-usa-hedgefunds-investors-focus-idUSKCN1UP17T|access-date=6 July 2020|archive-date=7 July 2020|archive-url=https://web.archive.org/web/20200707185811/https://www.reuters.com/article/us-usa-hedgefunds-investors-focus-idUSKCN1UP17T|url-status=live}} 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.{{Cite journal|last1=Hirst|first1=Scott|last2=Bebchuk|first2=Lucian|last3=Cohen|first3=Alma|date=1 July 2017|title=The Agency Problems of Institutional Investors|url=https://scholarship.law.bu.edu/faculty_scholarship/340|journal=Journal of Economic Perspectives|volume=31|issue=3|pages=89| doi=10.1257/jep.31.3.89 |access-date=5 November 2020|archive-date=6 November 2020|archive-url=https://web.archive.org/web/20201106130802/https://scholarship.law.bu.edu/faculty_scholarship/340/|url-status=live|doi-access=free}}{{rp|104}}

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.{{Rp|256}} 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.

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.

{{Main|Proxy statement#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.{{Cite web|url=https://corpgov.law.harvard.edu/2019/02/01/the-latest-on-proxy-access/|title=The Latest on Proxy Access|last1=Gregory|first1=Holly J.|last2=Grapsas|first2=Rebecca|website=corpgov.law.harvard.edu|language=en-US|access-date=29 August 2019|last3=Holl|first3=Claire|last4=LLP|first4=Sidley Austin|last5=on| date=February 2019 |archive-date=29 August 2019|archive-url=https://web.archive.org/web/20190829043851/https://corpgov.law.harvard.edu/2019/02/01/the-latest-on-proxy-access/|url-status=live}}

Votes for the board may be "straight" or "cumulative". In straight voting (aka statutory voting), shareholders get one vote per share on all ballot questions (e.g., candidates for the board of directors or shareholder proposals). 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 (or against) a single ballot question, which makes it easier for minority shareholders to elect candidates.{{Cite journal |last=Coyle |first=John F. |date=25 January 2016 |title=Altering Rules, Cumulative Voting, and Venture Capital |journal=Utah Law Review |language=en |location=Rochester, NY |ssrn=2719849}} There has also been a movement toward "majority" voting, where a candidate must receive the majority of votes.{{Cite web|url=https://www.jonesday.com/en/insights/2006/10/majority-voting-for-directors|title=Majority Voting for Directors {{!}} Insights|website=jonesday.com|language=en|access-date=19 March 2020|archive-date=19 March 2020|archive-url=https://web.archive.org/web/20200319014822/https://www.jonesday.com/en/insights/2006/10/majority-voting-for-directors|url-status=live}} 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.

Taking an activist approach to public investing may produce returns in excess of those likely to be achieved passively. A 2012 study by Activist Insight{{Cite web |title=Activist Insight - Shareholder Activism and Corporate Governance Information |url=http://www.activistinsight.com/ |archive-url=https://web.archive.org/web/20121127232258/http://www.activistinsight.com/ |archive-date=2012-11-27 |website= |language=en}} showed that the mean annual net return of over 40 activist-focused hedge funds had consistently outperformed the MSCI world index in the years after the 2008 financial crisis.Activist Insight: "New Shareholder Activist Index Reveals Rewards of Activist Investing" {{cite web |url=http://www.activistinsight.com/press/Activist%20Insight%20Press%20Release%20-%20Activism%20Outperforms%20-%20Nov%202012.pdf |title=Archived copy |access-date=12 December 2012 |url-status=live |archive-url=https://web.archive.org/web/20150623015933/http://www.activistinsight.com/press/Activist%20Insight%20Press%20Release%20-%20Activism%20Outperforms%20-%20Nov%202012.pdf |archive-date=23 June 2015}}. Retrieved 12 December 2012. Activist investing was the top-performing strategy among hedge funds in 2013, with such firms returning, on average, 16.6% while other hedge funds returned 9.5%.{{cite journal|last1=Wood|first1=John|last2=Dysart|first2=Theodore|title=Assessing the Merits of an Activist Investor's Point of View|url=https://www.transactionadvisors.com/insights/assessing-merits-activist-investor%E2%80%99s-point-view|journal=Transaction Advisors|issn=2329-9134|url-status=live|archive-url=https://web.archive.org/web/20150723090437/https://www.transactionadvisors.com/insights/assessing-merits-activist-investor%E2%80%99s-point-view|archive-date=23 July 2015}}

Shareholder activism directed at both European and American companies has been surging.{{Cite web| url=https://www.searchenginejournal.com/places-to-share-your-content/234905/| title=20 Places You Should be Sharing Your Content| date=14 June 2018| access-date=15 November 2018| archive-date=16 November 2018| archive-url=https://web.archive.org/web/20181116043239/https://www.searchenginejournal.com/places-to-share-your-content/234905/| url-status=live}} A 1996 study found that larger firms with higher institutional holdings made firms more likely to be targeted by activist investors.{{Cite journal | doi=10.1111/j.1540-6261.1996.tb05208.x|title = Shareholder Activism by Institutional Investors: Evidence from CalPERS| journal=The Journal of Finance| volume=51| pages=227–252|year = 1996|last1 = Smith|first1 = Michael P.}} Researchers also try to understand what makes company a desirable target for an activist investor.{{Cite journal | doi=10.1177/0007650308316524|title = Justice and Large Corporations| journal=Business & Society| volume=47| issue=4| pages=523–548|year = 2008|last1 = Logsdon|first1 = Jeanne M.| last2=Van Buren| first2=Harry J.|s2cid = 153607878}} Since the late 2010s scholars and practitioners have started using machine learning methodologies to predict both targets and activists.{{Cite web | url=https://www.nordantech.com/en/blog/data-science/activism-vorhersagen | title=Shareholder Activism: Wir sagen voraus wen es trifft! | work=Nordantech | access-date=15 November 2018 | archive-date=16 November 2018 | archive-url=https://web.archive.org/web/20181116001252/https://www.nordantech.com/en/blog/data-science/activism-vorhersagen | url-status=live }}

Any shareholder, including non-institutional retail investors, may submit a shareholder proposal in the United States, and between 1934 and the mid-1980s these shareholders typically submitted proposals.{{Cite journal|last=Miller|first=Robin|date=1 May 2016|title=Shareholder Advocacy In Corporate Elections: Case Studies In Proxy Voting Websites For Retail Investors|url=https://commons.clarku.edu/idce_masters_papers/52|journal=International Development, Community and Environment|access-date=19 March 2020|archive-date=19 March 2020|archive-url=https://web.archive.org/web/20200319005505/https://commons.clarku.edu/idce_masters_papers/52/|url-status=live}} One estimate placed institutional owners at 68% of shares and retail at 32% of shares, but 98% of institutional owners vote and only 28% of retail owners vote. Institutional shareholders, however, often vote automatically upon the advice of proxy advisory firms; allowing retail shareholders to vote based upon a guideline ("standing voting instructions") has been proposed to increase their involvement.{{Cite journal |last=Fisch |first=Jill E. |date=2017 |title=Standing Voting Instructions: Empowering the Excluded Retail Investor |journal=Minnesota Law Review |language=en |location=Rochester, NY |ssrn=2972838}}

Various websites have been created to facilitate retail involvement,{{Cite web|url=https://www.forbes.com/sites/richardlevick/2011/04/25/the-floodgates-are-open-shareholder-activists-intensify-social-media-utilization/|title=The Floodgates Are Open: Shareholder Activists Intensify Social Media Utilization|last=Levick|first=Richard|date=25 April 2011|website=Forbes|language=en|access-date=19 March 2020|archive-date=19 March 2020|archive-url=https://web.archive.org/web/20200319012126/https://www.forbes.com/sites/richardlevick/2011/04/25/the-floodgates-are-open-shareholder-activists-intensify-social-media-utilization/|url-status=live}} including Moxy Vote, Shareowners.org, United States Proxy Exchange and ProxyDemocracy.org, but over time these generally shut down.

Labor unions, including through pension funds such as CalPERS coalitions such as the Change to Win Federation often engage in shareholder proposals.{{Cite news|last=Morgenson|first=Gretchen|url=https://www.nytimes.com/2017/03/24/business/proxy-climate-change-executive-pay.html|title=Want Change? Shareholders Have a Tool for That|date=24 March 2017|work=The New York Times|access-date=19 March 2020|language=en-US|issn=0362-4331|archive-date=19 March 2020|archive-url=https://web.archive.org/web/20200319011644/https://www.nytimes.com/2017/03/24/business/proxy-climate-change-executive-pay.html|url-status=live}} The Shareholder Rights Group is a coalition of shareholder proposal advocates.{{Cite web|url=https://www.responsible-investor.com/articles/sec-rulemaking-threatens-to-disrupt-esg-investment-ecosystem-and-undermine-shareholder-rights|title=SEC rulemaking threatens to disrupt ESG investment ecosystem and undermine shareholder rights|website=Responsible Investor|date=7 January 2020 |language=en|access-date=19 March 2020|archive-date=19 March 2020|archive-url=https://web.archive.org/web/20200319013139/https://www.responsible-investor.com/articles/sec-rulemaking-threatens-to-disrupt-esg-investment-ecosystem-and-undermine-shareholder-rights|url-status=live}}

Organizations 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.

For an analysis of the hundreds of annual shareholder resolutions, see Proxy Preview.{{cite web|title=Proxy Preview|url=https://www.proxypreview.org/|website=|publisher=As You Sow}}

• Board of directors
• Corporate governance
• Corporate raid
• Corporate social responsibility
• Proxy statement
• Shareholder rebellion
• Socially responsible investing

{{reflist}}

• [https://money.cnn.com/2006/02/07/news/companies/timewarner_icahn/index.htm Icahn calls for Time Warner breakup, buyback / CNNMoney.com]
• [https://www.sec.gov/Archives/edgar/data/1002590/000089914005000128/t2774169.txt Third Point Management's letter to Star Gas CEO, Irik Sevin]
• [http://denver.bizjournals.com/denver/stories/2005/05/02/daily1.html?page=2 Qwest Withdraws from Bidding – Denver Business Journal / MCIpetition.com ]
• [https://web.archive.org/web/20131227032056/http://www.ecgi.org/activism/ Academic Literature Summary] (archived 27 December 2013)
• [http://cira.thinkabit.net/downloads/File/Engelhardt,%20The%20Rise%20of%20Activist%20Investing%20and%20How%20to%20Respond.pdf The Rise of Activist Investing and How to Respond]
• [https://www.alvarezandmarsal.com/insights/am-activist-alert A&M Activist Alert]
• [https://www.nordantech.com/en/blog/data-science/activism-vorhersagen Predicting Shareholder Activist Targets, Nordantech.com] {{Webarchive|url=https://web.archive.org/web/20181116001252/https://www.nordantech.com/en/blog/data-science/activism-vorhersagen |date=2018-11-16 }}

{{Hedge funds}}

Category:Corporate governance

Category:Activism by type

Category:Shareholders