Legal Intern, Manhattan Institute's Center for Legal Policy
Activist investors pushing political or idiosyncratic agendas, such as Catholic orders of nuns and individual "corporate gadflies," have existed in one form or another for many years. Traditionally, more value-oriented investors like Carl Icahn and private equity funds exerted influence through proxy fights, hostile takeovers and the like--jump-started in the 1980s and popularized through books and movies like Barbarians at the Gate. Recently, however, procedural shifts in corporate governance won by activists in the shareholder proposal process have enabled professional investors to gain new influence as well. As noted in a recent Wall Street Journal article, gradual changes in corporate governance rules have made it easier for activist investors to gain more leverage in getting their own candidates placed on company boards:
[N]ew corporate-governance rules are shifting that balance, making companies more vulnerable to contests for board seats, while mediocre stock returns are leaving mainstream mutual-fund investors dissatisfied. At the same time, many activists have recruited more-experienced executives to serve on boards, diminishing their image as corporate raiders out solely to make quick buck.
Although shareholder activism is not always aligned with increasing shareholder value, it is important to note that some forms of shareholder activism can be beneficial for shareholders. As Manhattan Institute's Center for Legal Policy Director Jim Copland notes:
Investors like Icahn are unambiguously trying to drive up share value (and have a strong record of doing so), which helps all shareholders. That's why I haven't generally opposed board declassification and majority election of directors; although it facilitates shareholder activism that may be more about extracting corporate value from all shareholders for special interests, it facilitates this "good" shareholder activism, too.
Nowadays more companies hold annual board elections, which give activists more influence than they would have if board terms were staggered and only part of the board could be contested at any one time. Also, large companies often require directors to win a majority of shareholder votes, rather than a mere plurality.