Large corporations with millions of stockholders today are faced with the proposition of either listening to their shareholders when they speak or completely ignoring them. Much of the time, shareholders remain somewhat silent due to the difficulties of communication with all of the individuals that own stock in the corporations. However, when they do manage to band together and speak to the board, the process is called shareholder activism
Shareholder activism is the way that shareholders assert their powers as owners of shares of a company. This is done to influence the company’s behavior by informing the board as to what the shareholders want. Activism as a shareholder covers a wide range of activities. It includes: voting with one’s feet or exiting meetings, private discussions with the board, public communication with the board and management, creating and putting forward shareholder resolutions, calling shareholder meetings, working to replace a member of a board, and working to replace the entire corporate board.
While many activities making up activism involve the shareholders talking to the board, it is also possible for the stockholders to be activists and work against a large shareholder instead of the board. Shareholder or stockholder activism can be collaborative. This is particularly true when it is conducted in private.
Currently, shareholders being activists is highly controversial. Like all great arguments, it has two sides and two positions, depending on whether an individual is in favor of these actions or anti the actions. Those in favor of activism argue that the companies with active and engaged shareholders are far more likely to succeed and be successful in the long run than those companies that have quiescent shareholders. While this seems like it makes sense, there is also the argument from opponents that shareholders who know absolutely nothing about the business beyond their stock purchase price have no business in running a corporation and are, in fact, more likely to run it into the ground. Not surprisingly, both sides have examples to back their views up.
In addition to informing the corporation as to what the shareholders want, activist shareholders are also known to act as a fire alarm. The mere existence or presence of shareholders has been known to alleviate complacency on the part of the managers and in the board room. When shareholders are present and companies perform poorly, the activists are thought to play the role of a fire department. They bring about changes in the company far more rapidly than what would have occurred if they had not been there.
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