What is shareholder activism?

Shareholder activism is a method to influence corporate policies and practices. As partial owners of a corporation, shareholders, also known as stockholders, have certain specific rights including the ability to vote at the annual meetings on such matters as approval of the membership of the Board of Directors, executive renumerations, dividend distributions and mergers. Shareholders with a sufficient amount of ownership (or equity) in the corporation can also submit resolutions for a vote at the annual meeting.

Until recently, shareholder activism was utilized mostly by those who wanted to have more control of a corporation they believed was being poorly run financially. They would purchase a minority position and then utilize a number of methods, including threats of litigation and public relations pressure to compel changes in board composition and corporate policies. Carl Icahn and Bill Ackerman are two of the best known of this type of activists but these methods have had numerous other adherents.

With the increasing public awareness of the role of corporations in the critical environmental and social issues affecting today’s society, shareholder activism has evolved to include those who want to see changes in corporate ESG strategies and activities. The majority of corporations base their business decisions on the short-term impacts on their quarterly financial reports. ESG shareholder activists, including some of the largest investment funds and other organizations, utilize their ownership positions to shift the corporation’s focus toward the long-term implications of their policies and procedures. They also apply a variety of methods, including shareholder resolutions and direct negotiations with management, to achieve these aims. Shareholder activism plays a vital role in well‐functioning capital markets by holding companies more accountable to shareholders, especially those who seek a more ESG values-driven approach to corporate behaviors.