Barbarians Inside the Gates: Raiders, Activists, and the Risk of Mistargeting

82 Pages Posted: 25 Oct 2021 Last revised: 18 Mar 2023

See all articles by Zohar Goshen

Zohar Goshen

Columbia Law School; European Corporate Governance Institute (ECGI); Ono Academic College Faculty of Law

Reilly Steel

Princeton University

Date Written: October 19, 2021


This Article argues that the conventional wisdom about corporate raiders and activist hedge funds—raiders break things and activists fix them—is wrong. Because activists have a higher risk of mistargeting—mistakenly shaking things up at firms that only appear to be underperforming—they are much more likely than raiders to destroy value and, ultimately, social wealth.

As corporate outsiders who challenge the incompetence or disloyalty of incumbent management, raiders and activists play similar roles in reducing “agency costs” at target firms. The difference between them comes down to a simple observation about their business models: raiders buy entire companies, while activists take minority stakes. This means that raiders are less likely to mistarget firms underperforming by only a slight margin, and they are less able to shift the costs of their mistakes onto other shareholders. The differences in incentives between raiders and activists only increase after acquiring their stake. Raiders have unrestricted access to nonpublic information after acquiring ownership of a target company, which allows them to look under the hood to determine whether changing the target’s business strategy is truly warranted. Activists, by contrast, have limited information and face structural conflicts of interest that impair their ability to evaluate objectively what’s best for the target company.

This insight has profound implications for corporate law and policy. Delaware and federal law alike have focused on keeping raiders outside the gates, but they ignore the real threat: activists that are already inside. This Article proposes reforms to both state and federal law that would equalize the regulation of raiders and activists.

Keywords: Corporate Law, Securities Regulations, Corporate Governance, Delaware Courts, Institutional Investors, Hedge Fund Activism, Principal Costs, Agency Costs,

JEL Classification: K20, K22, K41, G32, G34

Suggested Citation

Goshen, Zohar and Steel, Reilly, Barbarians Inside the Gates: Raiders, Activists, and the Risk of Mistargeting (October 19, 2021). Yale Law Journal, Vol. 132, No. 411, 2022, European Corporate Governance Institute - Law Working Paper No. 613/2021, Columbia Law and Economics Working Paper No. 664 , Available at SSRN: or

Zohar Goshen (Contact Author)

Columbia Law School ( email )

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New York, NY 10027
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212-854-9760 (Phone)
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European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels

Ono Academic College Faculty of Law

104 Zahal St.
Kiryat Ono, 55000


Reilly Steel

Princeton University ( email )

United States

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