Question

1. Discuss how shareholder activists change the way a corporation manages its business. Is this type of activism beneficial to US corporations? What is your opinion on this?

Answer 1

Solution:

Shareholder activism is not a new concept.It was there since the concept of giving voting rights to the shareholders of a company existed.But these days,this has been rising in heaps.The number of shareholder activists saw a rapid growth as with the number of cases/campaigns done by shareholders activists.Some of the main reasons for this to increase, is the financial literacy among the people has increased a lot and also the patience of the shareholders swa a huge drop.The average holding period of public listed companies has reduced from around 4 years(during 1970's) to around 7.5 months (presently) which clearly indicates how impatient the shareholders have become these days.They are not able to give sufficient time for the companies to improve/ rectify their underperformance / strategy etc.,

In my view,the shareholder activism has to be there,but it should become rampant. An investor while becoming a shareholder in a company will definitely have checked the performance of the company's management along with it's strategy and financials.So the shareholders should remain patient till the long-term goals like strategy become fruitful.They can seek clarification meanwhile but need not file legal suits / launch protests / ask for a position on the board etc., which may cause disturbance to the company which not only the shareholders activists but also the remaining shareholders specially the retail shareholders.

In my view,shareholder activism should be limited to some extent but should not always take an extreme form everytime.Activism should not become more of a public stunt as it may impact the brand value of the company and investment sentiment of the market / public towards the company.

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