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Shareholder Activism

An activist shareholder tries to accomplish certain goals using his or her equity stakes. Shareholder activism has the purpose of bringing change in the business. At Reorg, we are here to provide you help in making the right decisions for your company.

Their intention is to change the behavior of the company by influencing other fellow shareholders or by using their voting power.

It is not necessary for an activist to hold a larger portion of equity stake. It can surely be the reason for a better influence on the company but still, it isn’t required.

The reasons of activism can be financial or non-financial. Financial reasons include changings in the financial structure, cutting of costs, or a merger. Non-financial reasons include the adaptation of an environmental friendly policies or stopping operations in some markets.

Different Forms of Shareholder Activism

There are different methodologies for activists to bring the desired changes to a company. Here are some common forms of shareholder activism:

·       Shareholder Resolution

It is basically a proposal that a shareholder can submit for a vote at an annual meeting of the company. However, the company management opposes the idea of shareholder resolution but it can be used as a helpful mechanism to draw public attention.

·       Proxy Fights

Another effective method is to motivate other shareholders to use their proxy votes to make changes in the management. It usually happens when a group of shareholder don’t agree with the management.

·       Publicity Campaigns

In order to gain public attention to an issue or a problem in a company, an activist shareholder may use the power of public campaigns to put pressure on the management system.

·       Litigation

As a shareholder activist, it is also possible to take a legal action against the management system of a company to achieve certain goals. However, litigations can lead to negative sentiments and it can be really expensive.  

·       Negotiating with the Management

Sometimes, there is no need to put much efforts. Activists can simply negotiate the terms with the management in order to achieve desired goals.

How should a Company Respond to a Shareholder Activist?

Shareholder activists and their methodologies are keep increasing in number. It is getting harder for companies to deal with them.

As a company, the management should try to put themselves in shareholders’ shoes to understand their concerns, consider their ideas, and to find out how to respond to an activist campaign properly.

If a shareholder activist knocks on a company’s door, the company can simply listen and consider their ideas. it is a better decision to identify areas that really need attention and in order to demonstrate to other investors that the board and management respects the long term values of shareholders.  

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