The Future of Shareholder Activism

30 Pages Posted: 9 Jul 2019

See all articles by Assaf Hamdani

Assaf Hamdani

Tel Aviv University Buchman Faculty of Law; ECGI

Sharon Hannes

Tel Aviv University - Buchmann Faculty of Law

Date Written: July 6, 2019

Abstract

Activist hedge funds do not hold a sufficiently large number of shares to win proxy battles, and their success in driving corporate change relies on the willingness of institutional investors to support their cause. Against this background, this Article advances three claims about the interaction of activist hedge funds and institutional investors’ stewardship. First, this Article argues that the rise of activist hedge funds and their dramatic impact cannot be reconciled with the claim that institutional investors have systemic conflicts of interest that lead them to favor management. One cannot celebrate the achievements of activist hedge funds and at the same time argue that institutional investors systemically desire to appease managers. Second, this Article explains that the rise of money managers’ power is changing the nature of shareholder activism. Large money managers’ size and influence mean that they need not resort to aggressive tactics to influence companies’ management. In today’s marketplace, management initiates contact with large institutional investors to learn about any concerns that could trigger activist attacks. Finally, this Article argues that even well-incentivized institutional investors are unlikely to pursue some activist interventions specifically, those that require the appointment of activist directors to implement complex business changes. This Article analyzes the role activist directors play and show that it might require changes too dramatic to money managers’ business model and regulatory landscape. Institutional investors are therefore unlikely to displace activist hedge funds.

Keywords: Hedge Funds, Institutional Investors, Shareholder Activism, Activist Directors, Corporate Governance, Passive Investors,

JEL Classification: G34, G38, K22

Suggested Citation

Hamdani, Assaf and Hannes, Sharon, The Future of Shareholder Activism (July 6, 2019). Boston University Law Review, Vol. 99, p. 971, 2019. Available at SSRN: https://ssrn.com/abstract=3415901

Assaf Hamdani (Contact Author)

Tel Aviv University Buchman Faculty of Law; ECGI ( email )

Ramat Aviv
Tel Aviv 69978, IL
Israel

Sharon Hannes

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv 69978, IL
Israel

Register to save articles to
your library

Register

Paper statistics

Downloads
201
Abstract Views
571
rank
150,154
PlumX Metrics