"Shareholder activism" is a way in which shareholders can influence a corporation's behavior by exercising their rights as owners. An activist shareholder may attempt to put public pressure on a corporation's management to address financial, social or management issues. The article gives scenarios of numerous activist shareholders such as Carl Icahn, Dan Loeb, Nelson Peltz and Bill Ackman using this strategy of activism to somewhat "control" the corporations. According to the article, the activists' growing influence has many causes, such as the rule changes which have given shareholders more voting power and made institutional investors cast their votes more thoughtfully, and the advancement in social media that has allowed activists to mount a campaign with more ease.
On one hand, activists' critics with strong assumption that activists are profit-oriented people, have stated that activists encourage firms to do things that boost their share price in the short run but harm their long-term performance. On the other hand, the article suggests that there has been no empirical proof that activists focus only on short-term growth of corporations. Critics on this side of the story argued that activist shareholders should not be viewed negatively. To them, activists are "governance intermediaries" that find under-performing firms and offer their managers and institutional shareholders "concrete proposals for business strategy through mechanisms less drastic than takeovers."
Then the question is, which side is accessing shareholder activism without bias?
http://www.economist.com/news/business/21596556-pressure-companies-activist-shareholders-continues-grow-anything-you-can-do
1 comment:
Shareholder activism seems like a possibly dangerous proposition. While it certainly bodes well that the owners of a company can make their desires known,it can have pitfalls. While the input of knowledgeable and well intentioned shareholders is good, there is a risk of some "direct democracy."
What I mean by that is that if such activism becomes to popular the clamoring of many individual desires could easily overwhelm or sidetrack a company.
For the time being the rewards certainly outweigh the risks so until there are examples of companies being overwhelmed by the desires of their shareholders, I think it bodes quite well.
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