“Shareholder activism is on the rise,” says Raj Hindocha of Deutsche Bank. After a decade of stock market underperformance and a series of corporate governance scandals, shareholders are becoming more assertive in pushing for improvements at the firms they own.
Activist hedge funds – those that take stakes in companies with the specific intention of lobbying for changes – are at the forefront of this trend, with assets under management rising at a compound annual growth rate of 24% since 2008.
Increasingly, the involvement of these funds is welcomed by other investors, reflecting the fact that they’ve managed to shed their image as “Barbarians at the Gate” and are now seen as a “Force for Change” that can benefit all shareholders, says Alexandra Stevenson in The New York Times.
But have they really changed? Underneath the talk of making management more accountable to shareholders is a simple truth, says Rana Foroohar on Time.com. “Companies are holding more cash than ever on their balance sheets, and activists want them to give it back to shareholders.” The question is whether this is a good thing.
Activists argue that they prevent management from squandering cash. Opponents say they care more about boosting share prices in the short term than supporting long-term investment.
If activists want to benefit all shareholders and gain even more support, “they’ll have to argue for more than just big money payouts, and come up with real strategic plans to help the companies they are targeting”.