An activist shareholder uses an equity stake in a corporation to put public 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 from particular countries, adoption of environmentally friendly policies, etc.). The attraction of shareholder activism lies in its comparative cheapness; a fairly small stake (less than 10% 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.
Shareholder activism can take any of several forms: proxy battles, publicity campaigns, shareholder resolutions, litigation, and negotiations with management. Daniel Loeb, head of Third Point Management, is notable for his use of sharply written letters directed towards the CEOs of his target companies.
Some of the recent activist investment funds include: Icahn Management LP, Santa Monica Partners Opportunity Fund LP and Relational Investors, LLC.
Due to the Internet, smaller shareholders have also gained an outlet to voice their opinions. In 2005, small MCI Inc shareholders created an online petition to protest the MCI Inc/Verizon merger.
Notable activist investors
During the 1980s, notable activist investors such as Carl Icahn and T. Boone Pickens gained international notoriety 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.
In an Opalesque.TV interview with notable activist investor Philip Goldstein of Bulldog Investors, Goldstein describes the role of an activist investor as that of a catalyst unlocking value in an underlying security. He goes on to say that the public perception of activist investors has changed, and this image of "corporate raiders" has dissipated.
Notable activist investors:
- Carl Icahn
- Daniel Loeb
- Ralph V. Whitworth
- Kirk Kerkorian
- Warren Lichtenstein
- Alexey Navalny
- Stephen Mayne
- T. Boone Pickens, Jr.
- Sister Patricia Daly
- Philip Goldstein
- Thomas Strobhar
- Theo Botha
- Barington Capital
- David M. Webb
- William Ackman
- Guy Wyser-Pratte
Taking an activist approach to public investing may produce returns in excess of those likely to be achieved passively. A 2012 study by London-based research firm Activist Insight showed that the mean annual net return of over 40 activist-focused hedge funds had consistently outperformed the MSCI world index in the years following the global financial crisis in 2008.
Organizations such as the Interfaith Center on Corporate Responsibility (ICCR) and Ceres use shareholder resolutions, and other means of pressure, to address issues such as sustainability and human rights.
- "Takeover Bids for Chrysler, GM, Ford" Kirk Kerkorian#Automobile industry. Retrieved July 12 2012.
- NY Times: "Resolved: Public Corporations Shall Take Us Seriously" . Retrieved July 12 2012.
- World Magazine: "David versus Goliaths" . Vol. 23, No. 14. Retrieved 27 October 2008.
- Activist Insight: "New Shareholder Activist Index Reveals Rewards of Activist Investing" . Retrieved December 12 2012.
- Icahn calls for Time Warner breakup, buyback / CNNMoney.com
- Third Point Management's letter to Star Gas CEO, Irik Sevin
- Qwest Withdraws from Bidding - Denver Business Journal / MCIpetition.com
- Academic Literature Summary