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SHAREHOLDER ACTIVISM IN INTERNATIONAL CORPORATE GOVERNANCE
1.0 Shareholder activism and its global rise
1.1 Historical trends and prominent activist investors
Shareholder activism has become a strong factor in effecting changes in corporate governance systems
and capital markets. As pointed out by Allen and Carletti (2019), activist investors are some institutional
players or hedge funds pushing for changes in company strategies in order to improve shareholder value. It
has gained prominence all over the world and well-known activist investors including Carl Icahn and Bill
Ackman organizing campaigns on various companies of distinct industries. In the long run, Bebchuk, Brav,
and Jiang (2019) examine the negative and positive consequences of hedge fund interventions where
activist campaigns can make a positive change to corporate governance structures and enhance the
organization’s performance despite some short-term hostility from the management teams. They also point
out that some of the action that activist investors advocate include; demand for higher financial reporting
standards, evaluations and strict compliance to risks management measures besides urging boards and
managers of the company to protect shareholders’ interests especially by actualizing long-term executive
remuneration contracts. It can to some extent help to promote more corporate governance, board and
executive officer responsibility, a fairer share market for the benefit of shareholders and take the market to
the next competitive level. However, it’s worth saying that Shareholder activism is not fully effective
because depend on a several factors such as credibility and predicting experiences of the Shareholder
activists, the capability of management to respond to these activists, and legal framework over the
Shareholder responsibilities and rights. Whereas some observer s claim that interventions from activist
could stall the change into the short-termism or preempt long-term strategic planning, others view
shareholder activism as instrument that will foster corporate governance and value delivery. All in all, it is
impossible not to come to the conclusion that the role of shareholder activism in modern corporate
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governance is multifaceted, manifold, and in many ways still in the process of development, which occurs
due to the constant changes in the strategic management of companies and the transformation of the
financial market.
1.2 Geographic spread across developed and emerging
The shareholder activism presence is witnessed across the developed and emerging markets, although the
forces are different. Ararat and Black (2019) also point to the fact that governance practices are transported
internationally and ultimate owners are seen to align themselves to the international best practice in terms
of good governance practices as seen through the board of directors, executive remuneration, and as well
as commitment towards reporting of accurate and ethical financial statements. As explained also by
Hassine & Musshoff (2020), in developed countries like the USA and in Europe, activist investors
predominantly invest in large-cap companies which either experience managerial or governance
inefficiencies, or fail to generate adequate returns for their shareholders; they thereby seek to exert
changes within these firms to deliver superior value to shareholders, which may include demanding for a
seat on the board of directors, advocating for changes to managerial remuneration packages,However,
Becht et al. , 2022 underscore that activist strategies have been on the rise in emerging markets where
corporate governance mechanisms may still be in their developmental stages hence the prevalence of
activist interventions provide windows for correcting inefficiencies and proposing mechanisms for improving
corporate governance frameworks which can assume different forms including; initiating contact with
management to enhance disclosure policies, demanding changes to the board to improve its
independence, and overseeing that the activists compel firms into integrating ESG. This is because the
motivation associated with the activist campaigns is geared towards corruption aspects, lack of robust legal
measures on the protection of the minority shareholders and potential poor practices in the management of
risks in the existing markets in emergent economies (Lefort & Urzúa, 2018). In addition, it found that there
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are also evidences that pointed out there are also positive effects resulting from shareholder activism, and
some of these are the operational efficiency, improvement in corporate governance and even in the
creation of better long-term value for shareholders, although it is also noted that the effectiveness of such
activism depends a lot on the context of regulation, market development and the nature of response
activism from companies (Chou et al. , 2023).
1.3 Common strategies employed by activist shareholders
It is for this reason that activist shareholders use various techniques that are available in an attempt to alter
various decisions that are made in a corporation in a bid to ensure that shareholder value is achieved to the
maximum. The manipulation strategies include proxy fights, which involve shareholders trying to change
the company’s board of directors, and shareholder resolutions that aim at changing the company’s policies
or strategy. However, proxy contests can be a time-consuming and expensive process and it takes the
shareholder and others working with him/her sometime time to build a coalition across the institutional
investors to be successful (Karpoff, 2018). Organizational shareholder proposals, in contrast, mean that
every shareholder policy measure, for example, on executive remuneration, emissions, or board gender
diversity, is voted upon and, if approved, becomes binding and part of corporations’ management agendas
(Hermalin & Weisbach, 2018). Allen & Carletti (2019) it’s argued that media pressure, public campaigns
and legal proceedings are some of the ways that force companies to make changes that may have been
advocated for by activist investors. In some of them, the stakeholders mobilize the public through
movements using social media platforms, petitions, and other mass actions to step up the pressure on
companies to respond to the shareholder requirements (Klein, 2020). Through placing news stories or
editorials on the events or actions of a company, media pressure can impact the population’s perception of
the company and therefore deter them from investing in the particular business (Li & Zhang, 2021).
Litigation or possible regulatory complaints are often the legal actions that shareholders sacrifice and use
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as a formal process to contest specific management recommendations or decisions or report alleged
corporate malpractice, leading to agreements or court orders compelling changes within the corporation
(Bebchuk & Jackson, 2020). Actions sometimes contain meticulous assessments of a firm’s operations,
management, and even weaknesses and opportunities, thus, revealing the strong methodology that
shareholder activists use to achieve their goals. It is common to find activists carrying out rigorous analysis
including stock analysis, financial analysis, engaging stakeholders in an effort to marshal persuasive facts
and figures to gain support of other shareholders andthe regulatory agencies (Coffee Jr. , 2018).
1.4 Key drivers fueling shareholder activist campaigns
Common reasons have been known to underpin shareholder activist campaigns; financial incentives are
among the aspects that lead to shareholder activism. Belenzon and Schankerma (2017) have pointed out
that private ownership and incentives are key to understanding the performance of technology transfer in
universities; the authors continue to argue how ownership structure and incentives would affect activist
behavior. In the same manner they propose that private ownership can increase efficiency in the utilisation
of resources and effective performance thus mirroring shareholders activism within companies with similar
dynamics. Cash gains are considered crucial reasons that compel the hedge fund activists since they aim
at higher returns on stocks, as described by Becht et al. (2022). These activists use the principle of
relevance shareholder theory to invest in underperforming or companies with hidden worth through
operating, managerial or functional adjustments (Brav et al. , 2018). The motives of executives often turn
their attention to different problems that are associated with shareholder activism because by applying
direct pressure on their organizations, activists attempt to increase their stock’s price and gain financial
profit themselves and for other shareholders. Besides the consideration of specific issues such as mergers
and acquisitions, hedge funds’ perceived neglect of stakeholder interests, managerial entrenchment and
excessive pay rates are also addressed through activist interventions, in addition to other issues, including
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human rights, boardroom governance and other corporate management issues all suggesting a more
general concern with improving the exercise of power and responsibility at the top levels of firms. Inefficient
mechanisms, inadequate non-executive directors and unsound board management often create agency
costs and erode the confidence of shareholders hence activation for governance restructuring and board
renewal (Denis and McConnachi, 2019). Extensive executive hustling for wages especially if not tied to
organisational performance is not only possible but leads to shareholders engaging in activism in a bid to
ensure that pay is linked to value creation in the firm (Bebchuk & Fried, 2020). Other reasons related to
strategic mismanagement may also do the same, these include failed mergers or acquisitions, poor capital
allocation, or lack of adequate growth strategies, these are areas that activist are likely to point at in a
company since they affect shareholder value and are seen as inefficient management (Kahan & Rock,
2019). Activists may suggest other measures like divestitures, spin off or operational reconfiguration
whereby the activists bring a fresh approach in an effort to enhance the Companies operations and hence
performance ( Brav et al. , 2018). All in all we are in a position to conclude that shareholder activism is a
mix of financial self-interests, governance motives as well as the yearning for the improvement of long-run
shareholder and firm values.
2.0 Corporate governance implications of shareholder activism
2.1 Board independence and composition-related demands
Board independence and composition are among the most vital aspects targeted by shareholders’ activism.
According to Ben-David, Franzoni, and Moussawi (2022), hedge fund activism may create demands for the
alterations of the board of directors where activists seek more independent directors or directors with
particular domain knowledge relating to the company. They posit that pickin indy directors brings some
externality, minimizes agency issues, boosts board monitor duties in line with shareholders’ objectives and
drives more value in the long-run. Additionally, activists may advocate that board composition matches the
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notion of diversity as it relates to gender and color at the governance level to increase the number of
diverse perspectives and experiences (Adams & Ferreira, 2018). It is established from the study by Bhagat
and Romano (2019) that boards of corporations have embarked on reforms with a view of increasing
independence and that this was precipitated by the increased focus on regulatory measures as a way of
dealing with emerging governance issues. Host incredible institutionalized measures either prescribed by or
suggested by the regulatory authorities require minimum numbers of board independence, diversity, and
expertise to augment the effective corporate governance and to avert the related agency costs as well as
managerial entrenchment (Gilson & Gordon, 2018). These frameworks, in principle, and activist
shareholders ensure appointment of board members fit for monitoring managerial decisions, questioning
strategic assumptions, and ensuring accountability of executives for results (Hermalin & Weisbach, 2018).
In addition, stakeholders might seek direct engagement with the board of directors or with specific board
committees like the audit or compensation committees to provide strong supervision of financial reporting,
risky-evaluation plans, and executive remuneration policies (Coffee Jr. , 2018). Through the push for reform
of board of directors and governance structures, the activists seek to improve the efficiency and
functionality of boards, and increase the firm’s transparency to revive the shareholders’ faith in corporate
management mechanisms (Bebchuk & Jackson, 2020). In this respect, board independence and
composition are some of the most targeted areas by shareholders that push for genuine changes in
corporate governance and the improvement of firm values.
2.2 Executive compensation reforms and pay alignment
It is true that shareholder activists particularly exert pressure in aspects such as executive compensation as
demonstrated below. While examining the real consequences of hedge fund activism Brav, Jiang, and Kim
(2020) indicate that interventions can be aimed at the adjustment of cut – off levels and putting demands on
the alignment of executive compensation with performance and shareholders’ interest. Some critics believe
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that Opex is an indication of the excessive or poorly designed corporate executive remuneration, which can
result in agency issues where managers act solely in their self-interest of generating immediate return
regardless of the company’s value creation to shareholders and other stakeholders of the company. As
activists seek to challenge or alter the various policies regarding executives’ remunerations, their primary
goal is to mitigate agency costs, and thus improve the level of scrutiny in organisations. This corresponds
to the larger conversation on certain changes in corporate governance explored by Brennan, Guillamón-
Saorín, and Pierce (2022) to ensure that the incentives for executives are not trading on short-term profit-
making but are anchored in sustainable value enhancement. With the consideration of the overall corporate
governance developments, the rewards structures for executives have recently shifted focus towards
behaving more like pay-for-performance systems, using different performance indicators including
shareholders’ returns, values added, and efficiency to reward executives for their actions with a view of
ensuring that they undertake measures that will ensure that businesses are sustainable and competitive
(Denis & McConnachi, 2019). The shareholder activism is a powerful force that focuses on change, it has
also taken up the cause of reforms that would attempt to regain the link between pay and firm performance
in a way that eliminates the apparent disassociations with shareholder value. Employees may demand
modifications, including performance-based incentives, equity awards that are correlated with stock price
increases, and provisions whereby reclamation can be made for overcompensation in the event of
underperformance or revenue decrease (Bebchuk & Fried, 2020). Besides Goyal, Patro and Ismail (2015)
posit that these reforms are instrumental in shareholders’ incentives as well as in the enhancement of
corporate governance principles and practices of transparency, equity and merit for executives’
compensation (Hermalin & Weisbach, 2018). Activist shareholders perform is to influence executive
remuneration policies that are geared towards the promotion of sustainable value addition, compliance, and
the achievement of shareholder objectives by the management.
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2.3 Capital allocation and restructuring-focused interventions
Management often experiences shareholder activism in capital investments and specialised alternate
attempts to introduce restructuring ventures. Cain, Davidoff Solomon, and Rauterberg (2021) observes that
activism can result in the dismantling of conglomerates because activists will pressure conglomerates to
undertake divestitures or a spin off of a poor performing division. They claim that conglomerates could be
less efficient because they do not specialize in any particular core business, implying that they could end
up investing in the wrong areas for the conglomerate or achieving comparatively lower total shareholder
returns. These conglomerates are targeted by activists in order to make them more efficient, either pulling
out undervalued assets that can then be sold, or else to free up capital that can be deployed more
effectively by the different divisions or business units. Cai, Garner and Walkling (2019) also note the use of
shareholder activism to address the director incentives in the capital allocation decision and hence stress
on the proper alignment of investment to the standards expected by the shareholders. It is common for
activists to demure some forms of expenditure claiming they are not fundamental for the operation of the
company or that the acquisition is not closely related to the firm’s core business or that capital investments
are not profitable enough. Through their efforts, activists drive disciplined capital allocation and aim at
increasing and fortifying shareholder value and overall corporate performance (Denis & McConnachi,
2019). Activists also pay attention to the strengthening of the processes regulating the allocation of capital,
for example working on increasing the performance of the boards, improving the financial restrictions, or
using the clear reporting systems (Hermalin & Weisbach, 2018). These strategies dictate how the company
allocates capital towards various projects and may include policies like dividend hikes, stock repurchases,
debt repayment or acquisitions in order to enhance the capital structure and ensure the best returns for the
shareholders (Bebchuk & Fried, 2020). In addition, activists may also opt to initiate a conversation with the
management and other stakeholders to discuss potential alternatives that could open up value creation and
Company’s worth in the market, possibly through by divesture, joint ventures, or reorganization exercise
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among others (Brav et al. , 2018). Evaluating these insights it can be stated that shareholder activism
effectively intervenes in companies’ capitals decisions and promotes restructuring measures that would be
aligned with shareholders’ expectations, would increase firms’-stockholders returns, and would foster value
creation in the long term.
2.4 Environmental, social and governance (ESG) activism
The governmental focus on increased sustainability, ethical enterprises, and corporate governance has
also provoked more shareholder activism in ESG concerns in the last years. Title: Black, de Carvalho, and
Gorga (2018) discuss the problems of corporate governance in emerging markets, and ESG investing is
becoming more popular because of increasing interest in global environmental and social costs.
Management has observed pressure from shareholders in terms of formulating and implementing ESG
policies, reporting sustainability information, and incorporating such practices into organizational
frameworks. This form of activism is in line with other macro level assertion, which regard social and
environmental matters as pertinent to companies’ operations, as part of the transition to a more
comprehensive approach to value. ESG activism is the process regarding an outgoing process meant to
make a change in corporate behaviour and governance. One can encourage corporations to decrease their
carbon emissions, transition to renewable energy, maintain an ethical assortment supply approach, commit
to diversity and inclusion, as well as devote effort and resources towards community welfare (Clark, Feiner,
& Viehs, 2019). To influence, activists use tools like shareholder resolutions, direct discussions with the
management or gather other like-minded stakeholders with the common aim of trying to effect changes in
the ESG standards of a firm. In addition, there is growing evidence that investors are using environment,
social, governance factors while investing, acknowledging the effects of sustainability risks on the firms’
financial performance and value (Geczy, Stambaugh, & Levin, 2018). Market players especially the
institutional investors are now using the ESG factors in their investment decisions and practices besides
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entering into ESG dialogues with the organizations with an aim of protecting and improving the
shareholders’ welfare and wealth (Hawley & Williams, 2019). Business are also reflecting on this increase
in ESG activism through integrating sustainability targets into their business values, disclosures and KPIs
(Schneider et al. , 2020). ESG activism is a new and profound model of shareholder activism as decision-
makers start to focus on promoting sustainable business strategies and preventing socially irresponsible
actions of the management and firms in general.
3.0 Regulatory frameworks governing shareholder activist efforts
3.1 Disclosure requirements and ownership threshold rules
The ownership limit regulations and disclosure standards together hold a significant influential position for
the formation of the avenue of the shareholder activism. Staggered boards are analysed by Carleton,
Nelson, and Weisbach (2019) with more focus to how these structures of the governance process
determines shareholders’ activism as well as the variations in the attainment of the board of directors.
Accorded boards or classified boards distribute directors into various classes so that each class has its
term of office. This can create a barrier against activist shareholders due to the difficulty of exerting huge
influence over the board of directors in a particular annual election instance. Which means activists can
only use long-term strategies to continually bring changes into the board for successive elections, hence;
they spend more time and energy in their endeavors. Another layer of regulation with respect to disclosure
and ownership limits serves as a backdrop and influences shareholder activism. These rules set out the
liberalities that a shareholder requires in order to report his or her ownership interest in a public firm. Higher
thresholds can also dampen the power of activists to gain substantial stakes in firms and voice their
demands to the management team, due to dispersion of shareholders. On the other hand, lower thresholds
of ownership might help strengthen the opportunities for involvement and outcomes of activists for the
determination of such important strategic activities and corners of corporate governance (Choi, Fisch, &
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Kahan, 2017). The recorded activism employees use different documents, known in the USA as Schedule
13D or 13G filings to identify their stakes, aims and plans with regards to target firms. Enhanced disclosure
not only serves the interest of shareholders by allowing them greater understanding and the ability to make
informed decisions but also serves the interest of the companies and regulators to understand the
objectives, strategies, tactics, and probable outcomes of an activists’ intervention (Black 2018). Hence, is
an inverse relation between on the one hand investor protection measures and on the other hand the
corporate governance measures concerning the shareholder activism a cornerstone in the regulatory
models. Chang, Dasgupta, and Hilary – (2020) explain how the level of regulation having a direct impact on
whether activist campaigns are common and effective. It explained that shareholder empowerment
mechanisms like the proxy access rules or shareholder rights provisions helps to provide necessary
authority to shareholders to counteract or pressures management decision and hold heed accountable for
actions.
3.2 Proxy voting process and shareholder proposals
Proxy Voting and Shareholder Proposals are the important ways through which shareholders exercise
shareholder activism. Lately, Chen and Garel (2023) also analyze hedge fund activism now controlling
Asian firms, and its effects on corporate governance and firm performance, and how the proxy voting
mechanism affects governance outcomes. Proxy voting empowers shareholders to vote on various
corporate activities for instance, leadership of company’s board, executive remuneration structures, holding
of conferences, mergers, and acquisition, and other crucial issues. Schools of thought often mobilise other
shareholders using proxy voting to achieve their goals regarding corporate management and governance.
Another valued tactic of activist shareholders is a submission of a formal proposal that would call for a
change in the company’s policies or its board. These proposals may be a focal in environmental matters,
compensation and remuneration of executives and directors, diversity, and equality, or community relations
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and social responsibility policies (Denis & McConnachi, 2019). Shareholder proposal is a process through
which activists prepare and present with proposals to consist in proxy materials so that all shareholders can
approve or disapprove in the annual general meetings. Institutional shareholder activism has become one
of the primary approaches to passing shareholder proposals, as the result of a proposal is based on
shareholders’ support through proxy voting (Bebchuk and Jackson (2020)). Cheng, Hong, and Scheinkman
(2022) offer a perspective on institutional shareholder activism, using elements of tomorrow’s corporate-
governance landscape, like proxy vote outcomes, to predict today’s return rates for investors. Pension
funds, mutual and investment management firms have a massive voting power on shareholders resolutions
and have a huge say on corporate governance practice. Since they control a large amount of company
stakes, the votes of these shareholders can significantly impact decisions made during annual meetings
(Hermalin & Weisbach, 2018). Proxy voting and proposals are avenues through which shareholders get to
express themselves and exercise some level of control over the actions of the authorities. These
mechanisms enabling a dialogue between the shareholders and management, the enhancement of both,
the disclosure of information, and the development of concrete principles vis-a-via the practice of corporate
governance in response to shareholders’ actions (Brav et al. , 2018).
3.3 Insider trading regulations and activist stakes
Thus, insider trading regulation as well as activist stakes act as two key policy measures function in
consolidation in this the era of shareholder activism. Following the same line, Choi and Hasan (2023)
review the concept of institutional investor activism with special focus on aftermarket activism in the context
of emerging markets and the varying roles of regulations emerging in this concept. The laws of such
capacities of activism have to be played to ascertain the integrity and the legal recognition, the activists
embrace across the state, which can prove to be a circumstantial contingency that is desirable to counter
the legal disabilities of the act (Bebchuk & Jackson, 2020). Thus, the regulations developed by the SEC
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where specific periods, the size of the transactions, and the disclosure of the activist’s transactions are
limited, effectively control the actions of activists and guarantee that the supply and demand actions of
these individuals will not be manipulative. That is why large equity blocks, which are usually placed in the
target firms, are also an integral component of direct actions by shareholders. These stakes serve activists
to obtain such a leverage which might be effectively used to influence changes in the management of
corporations and even general strategies. Clayton & Jorgensen (2021) also prepare AAS to examine more
on the effects of activism to CEOs’ powers to showcase how stand activists’ stakes may exist to counter
managerial shortsightedness. Special interest shareholders can participate in situation where companies
are poorly managed or suffer from poor corporate governance mechanisms, in order to influence
managerial, board, or strategic decisions made by such firms (McConnachi & Denis 2019). Other such
reason is that the activists may acquire huge quantities of stocks of the company and this may also reduce
the necessity for the intervention of the activists as firms may endeavor to extend their shareholder value
and improve on performance. Activist stakework is another powerful agent capable of inciting large scale
changes in any firm, and within the broad market sphere in general. Bebchuk, Brav, and Jiang have
provided that an activist may embark in actions that amount to positive actions like divestitures, operating
changes, and or alterations to capital investments. Activist stakes can therefore expose value, enhance
financials and improve shareholders’ return thereby signifying the impact of activist on corporate outcomes.
3.4 Anti-activist takeover defenses and jurisdiction arbitrage
The first which can take different forms is anti activist takeover defenses, while the second can be referred
to as jurisdiction arbitrage. In essence, legal systems that exist to govern anti-takeover measures like
poison pills or staggered boards can impend activists’ forceful strategies (Bebchuk & Jackson, 2020).
These are strategies meant to delay the process in which activists can win control of the board or affect
many important corporate decisions so as to maintain the status quo as far as management and corporate
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governance are concerned. Another paper by Clayton and Jorgensen (2021) explores on how anti activist
takeover defenses affect power relations between CEOs and companies. Seeking for a deeper
understanding of how such protectionism may have a positive impact on the positions of the CEO and
indeed the entire firm, it is important to recognize that anti-takeover mechanisms may effectively embolden
the authority of managers through curbing interference from activist shareholders as well as other external
actors. However, like all other defenses these can create divergence and conflicts between the
management and shareholders especially when there are differences on operational strategies or corporate
governance practices as noted by Brav et al. , (2018). Pursuing the proper checks and balances for the
chief executive officer as well as shareholder activism is a thin line for companies in the context of the
activist campaigns and corporate governance manoevering. It involves decision making on the most proper
legal environment for the consideration of corporate governance issues say incorporation laws of particular
states which may be friendly to shareholders or choosing states that are friendly to arbitration among others
(Denis & McConnachi, 2019). Strategic choices of jurisdictions can affect the degree to which activists can
apply pressure in order to contest management, file a lawsuit, or engage in a proxy fight. It might be
possible for firms to use some jurisdictional gains in their fight against activists or to simply reduce on the
legal consequences that are linked to the matter of shareholder activism (Hermalin & Weisbach, 2018). It
means that activists must evaluate the effectiveness of anti-takeover measures and legal peculiarities of
jurisdictions when designing the action plan, while companies must consider when and how to activate
these measures and how to navigate within jurisdictions to ensure clients’ interests and the stability in the
decision making processes (Karpoff, 2018). It is seen that the tactics that activist interventions imply affect
the outcome according to the legislation adopted within a country’s legal system and also affect the global
map of defenses and jurisdictions of corporate governance and shareholder rights.
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4.0 Empirical evidence on shareholder activism outcomes
4.1 Operational and financial performance improvements
Management changes are another area of likely concern in hedge fund activism because the funds may
have the aim of changing operational and financial performance of the target firms. Meta-Analytic evidence
exists on the role of Hedge Fund activism in terms of Corporate Governance according to Das, Karamanou
and Patro (2020); activism results in several changes in the Company that improves operational efficiency
and decisions of financial management. Evaluating the importance of the role of activist shareholder and
their motives as the goal superior to management is the desire to extract as much value as possible, it
becomes possible to identify how an activist shareholder can encourage management to invest in value
creation activities. The nature of changes the activists don’t hesitate to initiate from the operational
management plan is mainly on cost slashing measures. Activism is when activists analyze the company’s
operations, uncover issues such as waste, and promote actions that will lead to cost reduction, perhaps by
rationalizing processes, minimizing overhead costs or even divesting certain, unused assets (Brav et al. ,
2018). They might include attempts to increase revenue to create a healthy stream of income also to
increase operational effectiveness in an organization with the goal of increasing corporate profits and thus
shareholder value. Another typical practice promoted by activists as crucial to cutting unnecessary costs is
the implementation of strategic reorganizations. This can entail a redesign of an organization structure,
modifying objectives to be more aligned with company goals, or expansion into other industries or products
with potential for growth (Hawley & Williams, 2019). Activists aim at aligning the strategic management of a
company with the goal of creating and improving on its worth through devising and implementing various
value creating plans. Enhanced capital management practices are also central in activist interventions with
share buybacks being a favourite strategy. In their work, Davidoff Solomon & Rauterberg (2018) have
discussed the evolution of shareholder activism pointing the fact that while in the USA shareholder activists
are more and more oriented to operational issues and recommend measures that would create value.
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Managers may be influenced by activists to alter capital investment spending priorities or proposals for
dividends, share repurchases, or handling of debt to better utilize resources and respond to shareholders’
needs (Bebchuk & Fried, 2020). The analysis of the role of hedge fund activism identifies that it has key
responsibilities of enhancing operations and economic returns of the targeted firms. In the end, activists
seek to add new changes to current governance structures, promote working improvements, and make
strategic transformations to increase the worth of stocks and, in turn, improve firms’ performance.
4.2 Long-term value creation and stock returns
Prospective shareholders’ objectives that embrace long-term value creation and stock returns cannot be
dismissed as pure fictions. Activist shareholder actions that lead to enhanced organizational efficiency,
management changes, or structural alterations in accountability mechanisms can meaningfully contribute to
shareowner value creation in the long term. De Angelis and Grinstein (2022: 45–70) analyse how
shareholder activism should be seen in relation to CSR and point out that activism should be seen as a
mechanism that encourages corporations to become less irresponsible. In the same manner, shareholder
activism can assist companies in integrating CSR projects with their business models and the orientation of
their operations toward the implementation of sustainable, positive changes stipulated by social values and
trends that, in turn, can significantly improve their competitive advantage and stability on the markets
(Karpoff, 2018). Building on Fos and Tsoutsoura in 2022, shareholder activism is analysed in connection
with CEO pay, as well as the role of proper governance reform in the relationship with long-term stock
performance. For that reason, activists have always been interested in interfering with and questioning
other needless or highly stylized executive remuneration schemes, demanding fair remuneration practices
that reflect the firm’s performance and shareholders’ welfare. Through carrying out activism that seeks to
reform corporate governance with regard to the pay of CEOs, activists are out to ensure that CEOs shift
more of their attention towards developing value adding activities that shall prevail in the long run in the
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best interest of shareholders (Bebchuk & Fried, 2020). Proprietary and effective changes in the system of
corporate governance can positively influence management decisions, improve the measures for risk
assessment and control, and synchronize the incentives of managers with the goals related to the
maximization of shareholder’s value. The changes can lead to sustained long-term stock performance that
is aligned to investor perceptions regarding the firm’s efficiency in delivering reasonable consistent levels of
returns. Scholarly research must recognize and embrace shareholder activism in order to ascertain the
effect of activism on operational improvements and genuine stock returns, on key strategic and operational
activities, on organizational changes pertaining to governance and social responsibility, and on that other
strategic and organizational factor that affects performance, namely executive pay. The actions of activists
in steering a cooperate to give better performance and in relation management and stockholders’ interest
are some of the way that help to boost corporate governance, transparency and accountability, which are
the most important factor to support sustainable stock value and business value in the long run.
4.3 Shifts in corporate strategy and policies
The events are often triggered by activist demands and changes in company strategy and policy as the
organization adapts to investor pressures. Extant literature by Denis and Sibilkov (2021) provides a rich
understanding of the association between shareholder activism and CEO turnover, demonstrating that the
act of activism can cause transitions in leadership and business plans in the targeted firms. Hacktivists
specifically focus on poor performing firms or those with corporate governance problems, usually
demanding management changes to improve corporate efficiency, increase the value of shareholder
stakes, and reconsecrate market credibility (Brav et al. , 2018). Activist arbitrage is understood by Dinc and
Erel (2020) as buyers taking advantage of mispriced equities and promoting governance changes that
release value. It can encompass selling off of assets and resources, mergers or acquisition of other
companies, restructuring of companies, or changes in the allocation of capital. Activists thus seek to unlock
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value through making adjustments that unlock latent value that investors – or other stakeholders with
ownership stakes – may not recognize or cannot realize effectively on their own (Bebchuk & Fried 2020).
These changes in the strategies and policies by the targets due to shareholders’ activism often have some
influence on the competitive map and trends in the performance of the targets. Activities in any of these
regions may trigger strategic changes including, but not limited to, the achievement of higher market share,
better economic profitability margins, novelty product development, and entry into new business markets or
segments (Hermalin & Weisbach, 2018). On the other hand, failure to meet activist demands or to
adequately respond to shareholders’ concerns means that reputational costs, declines in investor
confidence, and poor performance compared with benchmark firms (Brav et al. , 2020) will ensue. Instead,
shareholder activism is a primary driver of change within businesses as it fosters organizational evaluation,
reflection on/update of policies, and changes of management in an attempt to match investors’
expectations and venture for new opportunities on the marketplace. Activist campaigns and campaigns
result in altering long run strategic & performance profile of target companies to extent that activism has
become influential in determining firm strategy-&-governance.
4.4 Positive and negative externalities of activism
It is important to analyze the effects that shareholder activism can produce not only on the companies
directly involved but also the external consequences that it brings. To this effect, Edmans, Fang, and
Lewellen (2017) consider how equity vesting connects to investment with an appreciation for how
shareholder activism can drive companies to make investment decisions that are value-enhancing for and
increase the welfare of the stakeholders and the public at large. Activist actions may help the companies
direct their funds to investments in research, plant and equipment, and innovative endeavours as well as
capital projects that improve competitiveness, engender employment, and stimulate development (Bebchuk
& Jackson, 2020). On the other hand, activism may also bring several barriers and distractions in the
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organizations it invested in. Activist campaigns may consume the attention of management on the requests
of activists, and shift from value creating strategic decisions to the fulfillment of demands by activists
(Moeller et al. , 2017). Second, tendencies towards a higher usage of activism strategies like proxy fights or
hostile takeovers often result in the emergence of uncertainty and volatility in the financial markets,
decreasing investor confidence and adverse market conditions (Hawley & Williams, 2019). On the positive
aspect, Ferrell, Liang, & Renneboog (2016) talk about socially responsible firms and how activism can be
beneficial in the process by enhancing the effect of socially responsible actions by organizations.
Specifically, activists demand that corporations act responsibly by engaging in environmentally sound
operations, practicing ethics in their business actions, adopting equal opportunity for everyone while
including diverse people, and giving back to society by being socially responsible (Karpoff, 2018).
This type of system can result in better corporate governance, enhanced transparency and accountability,
hence increasing stakeholder confidence and organization reputation. However, the benefits as well as the
costs incurred to society caused by activism must be weighed is a policy consideration. Activism can serve
as an effective tool for promoting change and increasing the value of companies, but it is crucial to face
adverse effects like short-termism, disruptions in the markets, and managerial distractions as well. I used
this framework to show how beneficial mechanisms, which include good corporate governance practices,
investor outreach approaches, and appropriate legislation, can ensure that activism brings positive impacts
to sustainable economic development and stakeholder value addition while avoiding negative effects on
market stability and long-term business performance (Denis & McConnachi, 2019).
5.0 Future outlook and challenges in activism
5.1 Institutional investors' role in activist campaigns
Activist campaigns are highly sensitive since institutional investors control a significant proportion in the
market and have the ability to alter the strategic orientation of any organisation. According to Subramani
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and Wagner-Tschach (2019) explain how institutional investors can become involved in more activist
engagements and can use their powers to change corporate policies and board decisions. These investors
implement measures and have the voting rights that allow them to exert their influence in the management
and push for changes in the nature of corporate governance (Brav et al. , 2018). In their paper, Gantchev
and Giannetti (2019) further examine the costs and benefits associated with shareholder democracy
focusing on institutional investors’ voting capabilities as a strength that can be used against or in support of
activist endeavors. Participating in activist campaigns, they add a level of credibility that magnifies the
influence of activation and the draws attention into giving activist campaigns. That institutional investors’
backing can make the conveyed information to other shareholders and other stakeholders credible and
logical regarding the relevance and possibility of the prospective changes, as it makes activists’ odds of
success higher (Hawley and Williams, 2019). Together with voting rights, the institutional investors can also
actively participate in shareholder meetings, communicate with top managers and the board of directors,
discussing the challenges in corporate governance, strategy, and organizational practices and urging the
company to implement improvements that add value (Bebchuk & Jackson, 2020). It can foster constructive
discussions and negotiations and those modifications that may be to everyone’s benefit as a shareholder
and stakeholder of the company. But the participation of institutional investors in activism also comes with
its drawbacks concerning possible conflicts of interest, short termism, and an appropriate correlation
between shareholder value and stakeholder value (Denis & McConnachi, 2019). One has to be on the side
of long-term clients in terms of fund management together with the conscience of the impacts from their
actions on the company and the market performance as well the society as a whole (Karpoff, 2018). One
can state that institutional investors exhibit a decisive influence towards the activist campaigns, ICR, the
activation of the change in other companies, as well as the alterations in corporate governance and
behavior.
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5.2 Hedge fund activism vs. private equity
On this aspect, hedge fund activism and private equity are useful to differentiate as they incorporate two
forms of shareholder activism that may undertake different intentions and have separate strategies in terms
of managing corporations’ enterprises. Activist mergers of the hedge fund kind are the focus of Hill and
Sundaram (2019), who illustrate how activism can result in strategic actions such as mergers or
acquisitions. This strategic approach entails a few individuals or other firms purchasing a large proportion of
the equity of the targeted firms with an aim of exercising control over the firms’ strategic decisions as they
are typically used for underperforming firms which the activists believe have the potential for better
performance. These often seek reconsideration of management arrangements, capitalization or functioning
in a bid to maximize the maximization of shareholder value (Liu & Qian, 2020). On the other hand, while Hill
and Saatcioglu (2020) have provided a wide perspective of hedge fund activism they have concentrated
their work on the aspect of hedge fund activism in Asian countries and corporate governance, which shows
that activism is not the same in various parts of the world. Activism in Asia has to work under the cultural
and regulatory constraints that are different from those of the US, which means that activist investors need
to adapt their strategies depending on what they want to achieve: Utilising cultural and regulatory
differences of Asian countries, Chhaochharia & Grinstein (2019) established that the strategies of activist
investors differ significantly from the US model. Nam et al. (2019) clarify the duration of activist
participation, which facilitates understanding timelines and results of hedge fund activism instead of private
equity participation. Unlike hedge funds, private equity firms buy the whole scrip of target firms, ensuring
that they get to exercise greater influence on key business strategies (Wright et al. , 2021). This control
often triggers vast changes in its operations to include matters of cost reduction, productivity enhancement,
and organizational realignment. These interventions seek to improve the performance of companies and
create value to shareholders with increased investment horizons less than one year (Acharya et al. , 2020).
Nevertheless, some issues can emerge like the issue of conflict of interest on behalf of the investors,
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managers and other stakeholders (Kaplan Stromberg, 2019). Thus, hedge fund activism and private equity
interventions are much significant in the course of corporate governance and making value which use
different approaches and results influenced by market conditions, laws requisites, and investor aims.
5.3 Effective engagement by large passive investors
Index funds, mutual funds, pension funds and other forms of passive investors who own large blocks of
shares have a somewhat different position regarding shareholder activism given the quantity and quality of
their ownership. Iliev and Lowry (2021) categorize institutional investors, where they explain how passive
investors can actively affect all corporate governance decisions and outcomes through communication and
voting rights. These investors generally have a long-term perspective and invest in a range of securities to
mimic stock market indices rather than fondly selecting stocks. Nevertheless, their great properties to
manage prompt them significant voting rights in corporate management arrangements (Greenwood et al. ,
2020). Therefore, large passive investors can effectively participate in shareholder activism by supporting
genuine activists’ actions that seek to enhance sustainable value for the firm and addressing corporate
governance misconduct (Becht et al. , 2022). They may also vote for proposals initiated by shareholders
focusing on ESG performance, pay practices, or the selection of directors. When voting in favour of such
proposals, passive investors express approval of appropriate corporate conduct and influence the
strategies of their portfolio firms (Whitwell, 2021). This combination of passive institutional investors and
active shareholder activists can improve the impact of activist initiatives as major institutional investors with
large voting rights accredit (Cremers et al. , 2023). Furthermore, passive investors have the view to make
investments for the long term, and in fact, many activists ‘ agendas are aimed at addressing issues of
performance and governance (Baron et al. , 2020). Still, it is crucial to note that passive investors can often
encounter some difficulty in directly engaging with firms because of their passive investment management
style and legal duties to their own clients (BlackRock, 2020). Big, passive shareholders effectively hold
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varying degrees of influence over corporate decision-making processes and management’s strategic
options, especially when such shareholders act in cooperation with activist shareholders as a means of
putting pressure on management to act responsibly and sustainably.
5.4 Reconciling conflicting stakeholder interests in activism
For instance, one of the central difficulties that go with shareholder activism is the fact that they are always
faced with the very complex conflict of interests that encompass a number of stakeholders in the Company
environment. These are many and diverse the range going from shareholders and senior managers of the
firm to ordinary employees and other parties that have stakes in the firm and in its performance. In an
elaborate multiplex world of shareholder activism and managerial response, Hossain and Kross stir up such
a study. Such factors have contributed significantly to the growing knowledge of how firms operate in the
playing field of takeover defenses and how they design responses to activist pressures and actions but
more so with consideration to the overall interests of other stakeholders besides the shareholder. This
strategic navigation is very important given that it entails more than simply responding to the requests of
the activists while still bearing the long-term consequences in mind as to how this will impact the company
as a whole as well as relations with other stakeholders. Expanding from this, Hart and Zingales (2017) add
to the knowledge base through a call for companies to shift their focus from working towards the
maximization of market value, but instead working towards the highest possible level of welfare for
shareholders. Their argument therefore points to activism as a tool that creates a balance that is needed
more to further the interests of its organisational shareholders on the short-term basis, while at the same
time offering value that is sustainable in the long-run for the various stakeholders in the economy.
Regarding this, it is crucial to understand that activism cannot just mean ceaseless profit-making for
workers, even though this is quite deserved, but must assume a balanced and reasonable approach that is
sustainable and in the best interest of all stakeholders. To achieve such outcome, a comprehensive proper
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strategy is needed which cannot be restricted by mere activism techniques. This component focuses at
influencing multiple-interest stakeholder relations, introducing and encouraging discussion of
conciliation/(co)operation and cooperation-oriented strategies for reconciling sustainable stakeholder
relationship for overall best results. Due to the multiple layers of actors involved and the goals that they
pursue in the corporate system, it is crucial to have this kind of team-oriented approach to understanding
the dynamics of the shareholder activism and balancing the power of various shareholder groups as well as
a management and employees in order to achieve sustainable and beneficial strategic actions in the
organization.
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