Matthew Latham, Partner, Jones Day

Shareholder activism involves shareholders intentionally using their investment in a company as leverage to promote their own interests — or interests that they believe will serve the best interests of the company as a whole — in order to effect a change within the company, or the composition of the company’s board. Activist shareholders typically target companies where it is perceived that shareholder value is being eroded or is unrealised due to failures of the company’s board or management, or in the corporate strategy being pursued.

Activist shareholders will be motivated by a particular agenda. The agenda can be driven by a number of diverse aims including a desire to improve corporate governance, advance a specific cause (eg environmental or social issue), improve the economic return to shareholders, or alter the asset mix or strategic direction of the company. There can be intense debate around whether some of the agendas pursued by activists go to serve the specific interest of the shareholder promoting them (for example in the case of hedge funds who may have taken a short position in a company’s stocks), versus the genuine interests of the company as a whole over the medium-long term.

See Shareholder activism.