Girly Daily
  • Home
  • Celebrity
  • Fun
  • Gardening
  • Health
  • Hi Tech
  • Recipe
  • Renovation
  • Trade
  • Vehicle
  • Vogue
  • Write for us
Home  /  Lifestyle  /  Understanding the Different Types of Shareholder Activism

Understanding the Different Types of Shareholder Activism

Loretta Smith March 16, 2023 Lifestyle Leave a Comment

Shareholder activism is a way for minority shareholders to pressure management to change company policies and/or practices. Activists use different tactics to achieve their goals.

Depending on the company, activist approaches range from aggressive hedge fund campaigns to less aggressive dialogues with management and boards of directors. Understanding the different types of shareholder activism is essential for companies to respond effectively.

Identifying a Target Company

As the number of shareholder activism campaigns increases, it is becoming increasingly important for investors to understand which companies are likely to become target companies when an activist is active. Activists may look at several factors to identify a target company trading at a discount to intrinsic value or undervalued compared to similar companies.

Common metric activists use is operating margins, which indicate how much management is spending to create revenue and profit. Using this information, activists can evaluate whether management is spending too much or not allocating capital in the most efficient way possible. Alternatively, they may be looking for companies with high research and development spending because these investments can yield new products that can be sold more effectively.

Another indicator that activist investors are interested in is excess cash on a company’s balance sheet. These investors view cash held more than total debt outstanding as an opportunity for management to utilize that extra capital more efficiently, such as through dividend distributions or share repurchases.

Likewise, activist investors are interested in companies with large tax benefits or other significant non-cash assets. These investors believe these assets can be utilized to create additional shareholder value by repurchasing shares, acquiring other companies, or paying out special dividends.

Identifying the Activist

When shareholder activism occurs, boards of directors need to identify the activist. This can be achieved by reviewing their track record and previous campaigns to determine the risk they might pose to the company.

The activist can also be identified through their strategy and approach to shareholder engagement. Activists often start with a series of meetings with senior management to discuss their concerns and develop a clear agenda that is expected to be met.

Often by the time the activist engages with management, they have already developed specific proposals for unlocking value. These ideas are then discussed with shareholders and sometimes revised before they are revealed to the public through a press release or other announcements.

Boards that can manage this process proactively can keep the focus on the company’s business and minimize the damage caused by the activist. This also allows boards to build their credibility with the activist’s shareholders and strengthens the company’s reputation with the broader shareholder base.

The current environment is a fertile breeding ground for activist investors; not all companies are immune to such threats. Even those with strong financial performance and who are widely recognized as industry leaders may be targeted.

Identifying the Issue

When shareholder activism occurs, a company must determine what is at the root of the issue. The answer to that question will help a company develop an appropriate strategy to address the issue promptly.

Investors often turn to activist activities to improve a company’s long-term value and address governance practices that they believe are hurting its long-term performance. Activists may seek to break up the company, sell certain assets, return capital to shareholders, or retain an advisor to evaluate alternative ways to increase shareholder value.

Many institutional investors participate in shareholder activism, as do retail investors. These investors generally are long-term investors with a broad investment objective and are accustomed to leveraging their ownership rights to drive change.

One common type of shareholder activism is related to executive pay, often referred to as “say on pay.” This involves a subset of voting shareholders expressing their views about the executive compensation plans of companies they invest in. These shareholders are particularly likely to express these views if they believe the pay structures are not aligned with company performance, if the plan contains objectionable features (e.g., certain vesting terms), or if the compensation plan uses inappropriate performance metrics.

When shareholder activism is on the horizon, a key challenge facing management teams and boards is preparing for the inevitable arguments that activists will use to defend their perspectives. Developing a set of response documents that can be easily adapted if an activist successfully gains a seat on the board is critical to maintaining control of the narrative, which is essential for a company’s long-term success.

Developing a Strategy

Shareholder activism is a powerful tool for minority shareholders to influence the board of directors and executive management actions. However, it is not for everyone and requires a firm strategy.

While hedge funds account for much of the activist action, other investor groups use shareholder proposals and other tools to push for company change. These include religious groups, nonprofits, and advocacy organizations.

Activists typically have short investment time horizons, which means they want quick-hit actions that can drive up the stock price in the near term. This is a problem for long-term investors, as the increased share price could negatively impact future returns.

As shareholder activists become more focused on environmental and social issues, boards need to pay attention to their companies’ ESG profiles, ratings, and broader governance weaknesses. For example, a poor record on environmental or sustainability issues can trigger an activist campaign, as do executive compensation practices that are not aligned with the company’s performance.

The best defense against activist attacks is to proactively assess the company’s vulnerabilities, looking at the business from an activist’s perspective and considering whether alternative financial or business strategies (such as a divestiture, spinoff, or enhanced return of capital) could boost value for all shareholders. This approach can help reduce the risk of an activist campaign while strengthening the company’s credibility with shareholders.

Previous Article
Next Article

About Author

Loretta Smith
Loretta Smith

Loretta is a master gardener, traveller, and home decor expert. She loves writing about relationships and travelling. Her unique perspective lets her share insider tips and tricks to make your home feel like your own. Loretta wants you to have the best possible home-life experience, no matter what style or size you're looking for. Follow Loretta on social media for tips, tricks, and inspiration on living well - without spending a fortune!

Related Posts

  • eeping Your Stainless Jewelry Looking Like New

    Keeping Your Stainless Steel Jewelry Looking Like New: A Comprehensive Cleaning Guide

    March 19, 2023
  • Discover the Secret to Flawless Skin with the Best Mineral Foundation of 2023

    March 6, 2023
  • Butternut Squash Noodles Recipe

    4 Recipe Generator Tools to Help You Eat Well and Reduce Food Waste

    February 28, 2023

Leave a Reply

Cancel reply

  • Popular
  • Recent
  • Selena Gomez
    Selena Gomez Net Worth, Career, Lifestyle and Bio November 29, 2021 Celebrity
  • baked talaba recipe
    Tasty Baked Talaba Recipe: How to Make It? November 30, 2021 Recipe
  • how to start a paleta business
    How to start a paleta business? December 4, 2021 Trade
  • How to hotwire a motorcycle
    How to hotwire a motorcycle? December 5, 2021 Vehicle
  • From Classic to Creative: Pizza Recipes March 22, 2023 Recipe
  • eeping Your Stainless Jewelry Looking Like New
    Keeping Your Stainless Steel Jewelry Looking Like New: A Comprehensive Cleaning Guide March 19, 2023 Fashion, Lifestyle
  • style a tote bag
    How to style a tote bag for different occasions March 17, 2023 Fashion
  • Understanding the Different Types of Shareholder Activism March 16, 2023 Lifestyle

Recent Posts

  • From Classic to Creative: Pizza Recipes March 22, 2023
  • eeping Your Stainless Jewelry Looking Like New
    Keeping Your Stainless Steel Jewelry Looking Like New: A Comprehensive Cleaning Guide March 19, 2023
  • style a tote bag
    How to style a tote bag for different occasions March 17, 2023
  • Understanding the Different Types of Shareholder Activism March 16, 2023

Categories

  • Auto
  • Beauty
  • Celebrity
  • Fashion
  • Fun
  • Gardening
  • Health
  • Hi Tech
  • Lifestyle
  • Recipe
  • Renovation
  • Trade
  • Travel
  • Vehicle
  • Vogue

Popular Posts

  • Selena Gomez
    Selena Gomez Net Worth, Career, Lifestyle and Bio November 29, 2021
  • baked talaba recipe
    Tasty Baked Talaba Recipe: How to Make It? November 30, 2021
  • how to start a paleta business
    How to start a paleta business? December 4, 2021
  • How to hotwire a motorcycle
    How to hotwire a motorcycle? December 5, 2021

Pages

  • Home
  • About Girly Daily
  • Privacy Policy
  • Contact Us
  • Sitemap
  • RSS
  • Write for us

Random Posts

  • why is my broccoli gritty
    5 Simple Ways to Boost Your Vegetable Consumption February 18, 2023
  • American Gods Season 2
    American Gods Season 2: Reasons Why This Show Will Be Awesome August 17, 2022
  • Is Wearing a GoPro a Traffic Violation
    Is Wearing a GoPro a Traffic Violation? Exploring the Legal Implications of Mounting a Camera on Your Vehicle January 30, 2023
  • how long does raw chicken last in the fridge
    How Long Does Raw Chicken Last in The Fridge May 14, 2022

Tags

Among Us Backpack Idea baked talaba baked talaba recipe bar harbor activities bar harbour maine weather biography Christmas gifts cleaning mouse pad codes on roblox common pests and diseases of lemon trees CPU fan error asus dog dog Christmas gifts Florence Duomo Santa Maria del Fiore gifts in pokémon go GoPro high rise invasion high rise invasion season 2 hotwire How many watts does a treadmill use? how much fertilizer to use on a lemon tree how to clean mousepad How to factory reset a Cobra DVR How to play how to shave your boyfriend's face how to start net worth paleta business Pizza pokémon go rainy bar recipes Resetting your Cobra DVR password Selena Gomez send gifts shaved his mustache some tips for conserving energy on a treadmill The Grand Canal in Venice things to do in acadia things to do in bar harbor maine What are some historical facts about Italy? What is Italy Famous for? when and how to prune a lemon tree Why is italy popular
Theme by ThemesPie | Proudly Powered by WordPress
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent.
Cookie SettingsAccept All
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT