Who really controls public companies? Some might say it’s the CEO and other top executives. Others may argue it’s the board of directors. Still others may mention the shareholders, to whom the C-suite occupants must ultimately answer, via the value of the firm’s shares. All those answers are correct, but there’s one cohort missing, and it has become increasingly influential over the past decade: activist shareholders.
Tuck professor Mark DesJardine’s research is focused on corporate governance and business sustainability. He teaches Social Entrepreneurship in the MBA program.
Activist shareholders aren’t the average shareholders who just want to sit back and watch their shares appreciate. They are individuals and investment vehicles set up for the express purpose of finding underperforming firms, buying up significant percentages of shares, and trying to force companies to change the way they operate, to wring more value out for shareholders. A well-known activist campaign was waged by the small hedge fund Engine No. 1, which in 2021 succeeded in installing three directors on the board of Exxon, with the goal of reducing the firm’s carbon footprint and protecting its long-term shareholder value. More recent examples include battles at Disney (with Icahn) and Southwest (with Elliott Management).
It turns out Exxon found itself swept up in wave of shareholder activism. In 2013, 326 U.S. companies were targeted by activists; a decade later, that number was up to 550. And the trend continues across the globe, with Canada, Asia, and Europe all seeing double-digit increases in activist campaigns in the past two years.
For Tuck professor Mark DesJardine, activist shareholders are like an overlooked hand controlling the market—and one that few people understand. He’s been researching different facets of the activist shareholder dynamic for over ten years, and before that he worked in investor relations. This summer, that knowledge and experience coalesced in an article in Harvard Business Review titled “How to Respond to Shareholder Activism: Treat it as an opportunity, not a threat.” DesJardine is fascinated by this topic because, as he says, “few people really understand that behind the scenes you have these major investors that are shaping the priorities of the world’s biggest companies—and many others.”
DesJardine’s interest in shareholder activism began in 2012. He had just left a position in investor relations at Agrium (now Nutrien) to pursue his PhD at Ivey Business School. At around the same time, Agrium became the target of an activist campaign by Jana Partners. The activist claimed Agrium’s structure as a conglomerate was causing it to underperform in the market, so Jana wanted to install its own board members and break up the company. The campaign was a full-blown crisis for Agrium, which would have been transformed if Jana was successful. After ten months, it came down to a proxy vote, which Agrium won by a small margin. “I saw the health toll the fight took on the senior leadership team, and I saw what the company was doing to respond,” DesJardine says, “and since then I’ve been trying to piece together how companies should or shouldn’t respond to these types of shareholder engagements.”
Few people really understand that behind the scenes you have these major investors that are shaping the priorities of the world’s biggest companies.
— Mark DesJardine, Associate Professor of Business Administration
DesJardine started investigating that topic with his PhD dissertation, which focused on the causes and consequences of corporate short-termism. In it, he examined the tensions investors put on managers that distract them from the long term, and how managers balance the demands of quarterly profit growth, activists, and CSR initiatives. Since then, DesJardine has interviewed dozens of activist shareholders, and board members and executives involved in shareholder activism campaigns, and published research papers on issues such as activism and CSR, hedge fund activism and financial performance, activism and corporate strategy, and how activist hedge funds utilize board demographic diversity, among others. Moreover, DesJardine created an AI-driven model that analyzes more than 9 million data points drawn from all publicly disclosed activism campaigns over the past 15 years, which can help predict the firms most likely to be targeted by activists, and the outcomes of activism campaigns.
Using that model, and marshalling his professional experience and academic research, DesJardine has identified the three main components of the activist playbook. He explains these in depth in the HBR article. They include (1) linking performance failures to organizational weaknesses; (2) developing and communicating a plan of action; and (3) creating a narrative in support of change. As he lays out each component, DesJardine provides practical advice for managers.
“I initially found this stuff fascinating when I was working in investor relations, and after studying it for 10 or so years, I see the need for applied research that can help investors and managers approach these engagements more strategically,” DesJardine reflects. “I plan to keep going on this topic for years to come.”
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