Shareholder activism is a way for shareholders to influence the behaviour of a company by exercising their rights as partial owners. The changes they want to see can cover a wide range, from environmental concerns to governance and a company’s business model.

Shareholders vs boards: a sometimes antagonistic relationship

Although minority shareholders in listed companies do not manage day-to-day operations, they do have a number of ways of influencing the actions of a company’s board of directors and senior management. “These methods can range from dialogue with management to formal proposals, which are put to a vote by all shareholders at the company's annual meeting,” says , CEO of the Institut luxembourgeois des administrateurs (ILA), “Activist shareholders sometimes also employ other offensive tactics to impose change. For example, they may make strategic use of the media to publicise their demands and encourage other shareholders to exert greater pressure. They can also threaten companies with legal action if they are not allowed to speak out.”

Shareholders increasingly committed to ESG issues

In recent years, this form of activism has developed considerably. “A case of epic proportions can currently be followed in various media. Two of ExxonMobil’s investors, US investment adviser Arjuna Capital and Dutch shareholder group Follow This, filed shareholder resolutions for the AGM. The resolution would have allowed shareholders to vote on accelerating ExxonMobil’s reduction of greenhouse gas emissions. In January, ExxonMobil took the two shareholders to court,” explains von Restorff.

"This legal action in turn sparked an outcry from certain shareholders, including Calpers, the largest public pension fund in the United States, and the Norwegian fund NBIM, the largest individual owner of stock markets in the world. Both believe that ExxonMobil’s legal action was ‘a challenge to shareholders’ rights.’ They announced that they would vote against the re-election of certain members of ExxonMobil’s board of directors to protest against their ‘reckless’ legal action aimed at ‘silencing’ the voices of shareholders. At the AGM at the end of May, the board was re-elected with an overwhelming majority of votes.” Further developments will follow...

“What seems certain to me is that shareholder activists are here to stay,” concludes von Restorff, “because despite the criticism, empirical data suggests that the share price and operating results of target companies often improve after activist intervention. Warren Buffett once summed it up in these words: ‘If all companies were well managed, activists would have no reason to exist.’”

This article was written for the supplement supplement of the published on 19 June. It was originally published in and is published on the website to contribute to the complete Paperjam archive.