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Activist Shareholders and Institutional Investors - Explained - YouTube
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What is shareholder activism and how
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is that related to and the ownership of
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shares by corporations or investment
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groups in today's market in today's
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economy? Well let's start with the
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concept of an activist shareholder.
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Well as we've discussed the primary role of
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Directors is the high-level management
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of the corporation and that's the big
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decision making for the corporation and
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then the officers carry that out.
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Shareholders are largely passive in the
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decision-making function with the
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corporation but that is increasingly
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changing particularly because so many
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shares are the the ownership of shares
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tends to be concentrated these days with
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large shareholders and these
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shareholders have such a vested interest
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in the performance of the corporation,
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they can't sit by silently, they want to
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take part or influence the management of
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the corporation. Right. So they're
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extending the traditional role of the
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shareholder beyond that to try to more
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strongly influence the Board of
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Directors beyond simply voting for
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shareholder proposals or voting for the
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election of directors there again trying
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to influence decision. Now,
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so this expanded role again is
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non-traditional but so how is the
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ownership of shares by money funds or
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other entities affected this. Well again
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it concentrates share ownership, so these
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money funds own the shares on behalf of
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their investors. So say a money fund has
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all of the retirement accounts for an
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entire school system pension fund, right,
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or a sovereign wealth fund right tries
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to invest in a money fund that
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ultimately holds all of these corporate
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shares as investment assets and then the
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voting rights tend to
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accumulate there in that fund and then
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the managers of the fund typically hold
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the right to vote those shares, okay, or
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at least have a strong way of soliciting
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the proxies from their individual
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shareholders to vote on behalf of them.
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So they end up having a ton of authority
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in the corporation. Now this can make a
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real difference because lots of times
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these money funds are looking for not
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long term wealth prospects or gains on
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stock value or dividends, they're looking
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for short term returns and because any
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time after those short term returns are
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are completed they can divest themselves
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of the ownership interest. Well this can
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run counter to the interest of the
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corporation itself, the longevity,
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the ultimate future success of the
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corporation to push for short-term
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returns. Same type of function that
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improper incentive methods can do in
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certain situations too to do this
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incentivize or not to incentivize again
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long-term success of the corporation.
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So again this is an important concept
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important thing to understand, that again
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this honor ship scenario has
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dramatically changed the corporate
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governance structure. So now shareholders
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have particularly these large activist
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shareholders have a an important voice
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in the operations and daily decision
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making of the business entity of the
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corporation.
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