Against All Odds: Hedge Fund Activism in Controlled Companies

Abstract

The importance of shareholder activism in widely held public companies is already broadly recognized. Less well understood, however, is the role that activist hedge funds play in public companies with a controlling shareholder, and the common view has been that dispersed stock ownership is typically a precondition for activist intervention. To fill this gap, this Article presents the first comprehensive account of hedge fund activism in controlled companies in the United States. Using empirical data and illustrative examples from recent years, the Article finds a surprising number of activist engagements with controlled companies, and unveils the variety of channels through which activism is deployed as well as the limitations of these channels. It concludes by offering regulators and institutional investors some suggestions for further empowering activists in controlled companies, such as granting investors unaffiliated with the controllers the right to elect minority directors.

Keywords: Corporate governance, controlled companies, shareholder activism, corporate law, minority director, dual-class

JEL Classification: K22