Shareholder activists use their stake in publicly traded companies to put pressure on managers with whom they are dissatisfied. In other words, shareholder activists are followers who have less power, authority, and influence than leaders, who have more. Occasionally, however, activists can force management’s hand, in which case the balance of power shifts, from leaders (managers) to followers (shareholders). Generally, this happens when the activist(s) are in some way well endowed, for example, when they have large sums of money or were able to mobilize public opinion.
Daniel Loeb is a prototypical activist investor who falls into the first category. He is enormously wealthy and, as CEO of a hedge fund by the name of Third Point, he is also enormously powerful. Which is why he seems to have few compunctions about taking on – at moments he deems opportune – corporate giants such as Disney, Sony, and Intel.
But not every challenger is so well endowed. Engine No. 1 is a small hedge fund that recently dared to challenge a behemoth you might have heard of – it goes by the name of Exxon. Though on paper Engine No. 1 looked weak, a mere minnow taking on a whale, the minnow was able to marshal major allies to force changes at Exxon that initially were thought inconceivable. (Engine No. 1 was aiming to compel Exxon to reduce its carbon footprint by moving more quickly away from fossil fuels.)
Such shareholder successes are becoming more frequent than they used to be – early signs of a trend that in my view has been long in coming. (I wrote about this briefly in The End of Leadership, published in 2012.) Of course, it will happen only when the will to make it happen can be harnessed to technologies that make it possible for small investors, minnows, to unite in a common cause.
As New York Times columnist Jeff Sommer recently observed, up to now shareholder democracy has “been something of an oxymoron.” Most of the time millions of shareholders have had no voice in decisions made by publicly traded American companies. If this changes, followers (small investors) will become more powerful, which necessarily means that leaders (corporate executives) will become less powerful.