what is activism investing?

what is activism investing?

in April, Nobuaki Kurumatani resigned as CEO of Toshiba.

for nearly three years, the Japanese conglomerate was facing heat from activist shareholders like Effissimo Capital Management. these investors demanded an extraordinary general meeting to determine if shareholder rights had been violated in a 2020 meeting. finally, Kurumatani resigned.

how did it happen?

for years, large corporations have been accused of overlooking minority shareholder interests and taking decisions that may benefit a select few. but there is a steady, growing change where activist investors are aggressively voicing their concerns.

how does this work?

an activist investor is usually an individual or a group who slowly builds a sizable stake in companies and then demands that management and the board listen to their concerns. if they’re ignored, activist investors have been known to force a vote against the board members as well. 

who is this group?

typically, such activist investors are private equity companies or large hedge funds. they look for companies where the business is mismanaged but still has potential to grow and create wealth for shareholders in the hands of a more competent management.

there are different ways of looking at it

in a way, activist investing is a subset of value investing where the investor identifies a company which is undervalued due to certain weaknesses. but unlike traditional value investors, activists take matters in their own hands and try to bring about strategic changes which would increase shareholder value.

while a majority of such incidents have been witnessed in the US market, there is now a steady increase in other geographies as well. in 2020, European and Asia-Pacific campaign levels were up 21% and 11%, respectively, compared to 2019, as per data by Lazard.

the Lazard report also says that globally 131 Board seats were won by activists in 2020, in line with the multi-year average.

while activist investing may seem like a practice which may benefit and be executed only by larger players like hedge funds, but some mutual funds and exchange-traded funds (ETFs) do provide exposure to smaller investors to this strategy. the 13D Activist Fund and LeaderShares Activist Leaders ETF are examples which follow this strategy.