In the 1980s, large activist shareholders would buy significant stakes in companies and often
seek to increase the debt load, sell off business units reducing diversification, and downsize by
laying off many workers. If the firms did not respond as the activist shareholders required, they
would make the company pay a premium on the shares they bought, often called “greenmail.”
Today activist investors are doing many of the same things, but it seems that they are being
supported by institutional investors who often follow the activist investors’ lead or support
them in their activities. Interestingly, the number of activist funds have grown from just 76 in
2010 to 203 in 2014. Their activities have increased as well with 136 firms targeted in 2010 rising
to 344 in 2014. One Citigroup analyst, Tobias Levkovich, suggested that “we suspect there is a
limited universe for the activists, and eventually the arbitrage opportunity will be exhausted.”
One of the strategies these activist investors pursue is to pressure firms to allow representa-
tives to stand for election to the targeted company’s board. Another strategy gaining momen-
tum is the access to the
proxy process to include
shareholder resolutions
for shareholder votes. This
access has been allowed
by the courts and the U.S.
Securities and Exchange
Commission’s (SEC) efforts
to require more proxy vot-
ing action opportunities
to shareholders. However,
the U.S. Chamber of
Commerce and Society of
Corporate Secretaries &
Governance Profession-
als are worried that “the
proliferation of the proxy
access will lead to the
nomination of ‘special
interest’ directors harming
long-term shareholders.”
Nonetheless, regulators’
decisions have seemed to open the flood gates to firms allowing more proxy access. As such, firm
shareholders will be able to vote on strategic issues presented by activist shareholders as well as
lead activist shareholders by directly nominating board members who represent their interests.
Some of these firms are quite large and visible, such as DuPont, Vivendi, and QUALCOMM.
For example, DuPont’s CEO Ellen Kullman has fought a proxy battle in media outlets. Trian Fund
Management L.P. representatives, headed by CEO Nelson Peltz, have criss-crossed the country
as has CEO Kullman’s team, seeking to persuade shareholders about their opposing positions
regarding access to board seats. Trian wants four board seats, most importantly for Mr. Peltz,
and is “seeking to oust the heads of several key board committees.” Kullman has responded,
“Mr. Peltz wants to establish a ‘shadow management’ team dedicated to pushing a short-term
agenda.” She argues that DuPont has cut $1 billion in cost and pursued other efficiencies and
that Trian wants to nominate directors that lack the expertise and patience needed to steer an
agricultural and chemical company that often requires decades to create innovation and launch
products. Kullman argues, “can you cut costs and create a bump short-term? Yes, but where are
you going to be in 2 years, in 5 years? Do you exist in 10?” Often these activist investors seek
stock buybacks and increases in dividends as well as selling off “non-performing businesses.”
Over time, in part due to such activism, objections to corporate governance arrangements have
become more strident and monitoring of top executives more intense.
However, there are risks to activist approaches, as evidenced in the Herbalife conflict. William
Ackman’s Pershing Square Capital Management L.P. has been alleging that nutritional-products
THE CORPORATE RAIDERS OF THE 1980S HAVE BECOME
THE ACTIVIST SHAREHOLDERS OF TODAYHeidi Gutman/CNBC/NBCU Photo Bank/Getty Images