{"id":14133,"date":"2024-06-23T21:32:45","date_gmt":"2024-06-23T21:32:45","guid":{"rendered":"https:\/\/www.simtrade.fr\/blog_simtrade\/?p=14133"},"modified":"2024-07-10T21:09:16","modified_gmt":"2024-07-10T21:09:16","slug":"activists-in-financial-markets-and-the-corporate-world","status":"publish","type":"post","link":"https:\/\/www.simtrade.fr\/blog_simtrade\/activists-in-financial-markets-and-the-corporate-world\/","title":{"rendered":"Activists in financial markets and the corporate world"},"content":{"rendered":"\n

Activists in financial markets and the corporate world<\/h1>\n\n\"Nithisha<\/a>\n\n

In this article, Nithisha CHALLA<\/a> (ESSEC Business School, Grande Ecole<\/i> Program – Master in Management (MiM), 2021-2024) presents information how individuals and groups (financial activists) use their influence as shareholders to drive strategic, operational, and governance changes within companies to improve performance, enhance shareholder value, and promote ethical practices.<\/p>\n\n\n

Introduction<\/h2>\n\n

Activism in financial markets and the corporate world refers to the efforts of individuals or institutions (like hedge funds) to influence a company’s behavior. Their objectives can include changes in management, strategy, financial structure, or operational practices. Activists aim to improve company performance, enhance shareholder value, or promote social, environmental, or governance (ESG) objectives.<\/p>\n\n\n

History<\/h2>\n\n

The concept of shareholder activism dates back to the early 20th century, but it gained significant momentum in the 1980s. During this period, activist investors began buying substantial shares in underperforming companies to gain control and enforce changes. For example, Paul Singer and AT&T, where Paul Singer\u2019s Elliott Management took a $3.2 billion stake in AT&T in 2019. Over the decades, activism has evolved, with various methods and strategies being adopted to exert influence on corporate boards and top management.<\/p>\n\n\n

Types of Activism<\/h2>\n\n

There are different types of activism: shareholder activism, Environmental, Social, and Governance (ESG) activism, operational activism, and proxy fights.<\/p>\n\n\n

Shareholder Activism<\/h3>\n\n

Shareholder activism focuses on improving company performance and shareholder returns through changes in governance, strategy, or financial practices.<\/p>\n\n

For example, in the case of Apple in 2015, Carl Icahn’s activism led to increased share buybacks and dividend payments, enhancing shareholder returns.<\/p>\n\n\n

Environmental, Social, and Governance (ESG) Activism<\/h3>\n\n

Environmental, Social, and Governance (ESG) activism aims to promote sustainable and ethical practices within companies, addressing issues like climate change, labor practices, and board diversity.<\/p>\n\n

The most common ESG-related litigation is based on alleged false disclosures in securities filings. Statements in proxy materials about companies\u2019 commitment to diversity could be false and misleading because there is a lack of diversity and\/or the companies fail to follow through on promises to increase diversity.<\/p>\n\n

For example, the SEC reached a US$35 million settlement with a gaming company in February 2023 after the company failed to maintain disclosure controls related to workplace misconduct. This settlement came after a wave of shareholders advocated for leadership changes within the company and its board.<\/p>\n\n\n

Operational Activism<\/h3>\n\n

Operational activism involves pushing for changes in the company’s operations, such as cost-cutting measures, divestitures, or restructuring. <\/p>\n\n

For example, in the case of Procter & Gamble (P&G) in 2017, Nelson Peltz’s Trian Partners waged a successful campaign for board representation, leading to significant cost-cutting and strategic refocus. <\/p>\n\n\n

Proxy Fights<\/h3>\n\n

Proxy fights occur when activists seek to gain seats on the company’s board to directly influence decisions.<\/p>\n\n

For example, in the case of Yahoo in 2017, activist pressures from several hedge funds, including Third Point led by Dan Loeb, resulted in major leadership changes and a shift in strategic direction. <\/p>\n\n\n

Methods and Strategies<\/h2>\n\n

To achieve their goals, activists have different methods and strategies: engagement and dialogue with companies, public campaigns, proxy battles, litigation, and shareholder proposals.<\/p>\n\n\n

Engagement and Dialogue with Companies <\/h3>\n\n

Activists may initiate discussions with the top management and the board of companies to induce changes.<\/p>\n\n\n

Public Campaigns<\/h3>\n\n

Activists may use media and public statements to rally support from other shareholders and put pressure on the company. <\/p>\n\n\n\n

Proxy Battles<\/h3>\n\n

Through proxy battles, activists may gain enough shareholder votes during general meetings to win board seats and implement changes directly.<\/p>\n\n\n

Litigation<\/h3>\n\n

Activists may take legal action to force companies to comply with certain demands.<\/p>\n\n\n

Shareholder Proposals<\/h3>\n\n

Activists may submit proposals to be voted on at the companies\u2019 annual meetings.<\/p>\n\n

Short Selling<\/h3>\n\n

Activists may sell borrowed shares of a company with the expectation that the stock price will decline. Activists may release reports highlighting issues such as accounting irregularities or poor governance to justify their short positions.<\/p>\n\n\n

Notable Activists<\/h2>\n\n