Activist Investor
Candlefocus EditorActivist investors will always aim to lobby company management to change the company’s policies and approaches. Where management is resistant to change, activist investors may go beyond lobbying and attempt to influence the board and launch a full-blown proxy fight for board seats. This will involve encouraging shareholders to support the activist's stance, or even pursue a hostile takeover of the company.
Since the mid-2000s, the number of activist investors has grown significantly, particularly in the US. This increase is due to the proliferation of hedge funds specialized in activist investing, as well as the growing trend in institutional investors to engage in activist investing. Activist investors typically focus their demands on financial issues, such as dividend payments, debt reductions, stock buybacks and capital investments; however, activist investors may also focus their demands on managerial restructuring, or pushing the company to address environmental, social and governance issues.
In response to the increasing activity of activist investors, the Securities and Exchange Commission (SEC) has proposed tougher disclosure rules, which would require activist investors to disclose more information about their investments and intentions. Critics believe these measures may make activism less profitable, meaning fewer investors will be willing to engage in it.
All in all, it is clear that the influence of activist investors has grown significantly in recent years, and their presence continues to elicit strong reactions from both supporters and critics. The effects of the tougher disclosure rules proposed by the SEC remain to be seen.