Activist Investor

  • Activist investors seek to create value for fellow shareholders by forcing companies to take action to improve their financial performance and stock prices, including changes in management, selling assets, cutting costs, changing the capital structure (amount of borrowings) and generally increasing the efficiency and competitiveness of the company. (Sometimes cause-driven shareholders, such as climate activists, are also included, but that’s a separate topic.)
  • Typically, activist investors aim to accumulate a substantial stake in a company, usually 5% or more, but sometimes even with a smaller stake of only 1% or 2%, an activist investor can exert influence if they have a known reputation, a compelling argument and an underperforming target.
  • However, some (including under-pressure management) argue that the short-term focus of such investors can be bad for the long-term health of the company, such as when selling assets, taking on lots of debt and slashing jobs hurts long-term growth and company culture.