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The Past, Present and Future of Shareholder Activism by Hedge Funds

93 Pages Posted: 24 Sep 2011 Last revised: 29 Sep 2011

Brian R. Cheffins

University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Date Written: August 31, 2011

Abstract

The forthright brand of shareholder activism hedge funds deploy emerged by the mid-2000s as a major corporate governance phenomenon. This paper explains the rise of hedge fund activism and offers predictions about future developments. The paper begins by distinguishing the “offensive” form of activism hedge funds engage in from “defensive” interventions “mainstream” institutional investors (e.g. pension funds or mutual funds) undertake. Variables influencing the prevalence of offensive shareholder activism are then identified using a heuristic device, “the market for corporate influence”. The rise of hedge funds as practitioners of offensive shareholder activism is traced by reference to the “supply” and “demand” sides of this market, with the basic chronology being that, while there were direct antecedents of hedge fund activists as far back as the 1980s, hedge funds did not move to the activism forefront until the 2000s. The paper brings matters up-to-date by discussing the impact of the recent financial crisis on hedge fund activism and draws upon the market for corporate influence heuristic to predict that activism by hedge funds is likely to remain an important element of corporate governance going forward.

This is a revised version of “The Rise and Fall (?) of Shareholder Activism by Hedge Funds”, available at: http://ssrn.com/abstract=1489336.

Keywords: Shareholder, Shareholder activism, hedge funds, corporate law, corporation

JEL Classification: G34, G38, K22, N22

Suggested Citation

Cheffins, Brian R. and Armour, John, The Past, Present and Future of Shareholder Activism by Hedge Funds (August 31, 2011). Journal of Corporation Law, 2012; University of Cambridge Faculty of Law Research Paper No. 38/2011. Available at SSRN: https://ssrn.com/abstract=1932805

Brian R. Cheffins (Contact Author)

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom
+44 1223 330084 (Phone)
+44 1223 330055 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

John Armour

University of Oxford - Faculty of Law ( email )

Oriel College
Oxford, OX1 4EW
United Kingdom
+44 1865 286544 (Phone)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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