Shareholder activism debate: The recent rise of shareholder activism, particularly from the hedge fund sector, has not been universally welcome. But should politicians and regulators step in, or should the market police itself?
Only a decade ago, share ownership in UK public companies was dominated by a handful of fund managers investing on behalf of pension funds and insurance companies. Shareholder activism was defensive.
Institutional investors owning large stakes in companies were prepared to arm-twist boards on topics such as dividend policy and rights offerings, and to orchestrate the removal of chief executives in troubled companies. Rarely, however, was there offensive shareholder activism. Building up a stake in a publicly quoted company with the intention of agitating for change was futile because among institutional investors the default rule was to back management.
Over the past decade, pension funds and insurance companies have wound down their holdings. The vacuum has been filled by shareholders less inclined to back management, such as hedge funds and international institutional investors. It’s also commonplace for investors to buy equities with the intention of supporting initiatives proposed by insurgents. The result has been a surge in offensive shareholder activism.
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