Hope this can help! <3

1. Shareholders
and
Shareholder
Activism
CHAPTER 7

2. What is a shareholder
activism?
 Is when shareholders
express their opinions to
try to affect or influence
the firm.
Types of Shareholder Activist?
1. Shareholder proposals
2. Directors election
contest
3. The lawsuit

3. Kinds of Shareholders
activism:
 Individual shareholders
 Large shareholders
 Institutional shareholders
“Individual or institutional
can be a large shareholders”

4. Individual
Shareholders
 Lewis Gilbert
- First individual activist
- 1932, owner of 10 shares, of
NY Consolidated Gas Company
- Gilbert and his brother
pushed a reform
- 1942, SEC, created a rule
 Lee Greenwood
- General Mills Management
- wheaties

5. • Evelyn Y. Davis
(raises hell)
- most well known and featured
in People Magazine
- Shareholders of about 120
firms
- Attended 40 meetings
annually
- Berated executives in
decisions & pay
- “corporate gadflies”

6. Large Shareholders
• Kirk Kerkorian
-the largest shareholder of
Chrysler
-active & influential
-have large vested interest in
running the company, battled
with former Chrysler
chairman Robert Eaton
-suggested disbursement of
cash holdings into stock
repurchases or dividends

7. -Bill Gates
• owns over 8 percent of
Microsoft Corporation
• both a manager & owner
(minimizes conflict of
interest problems)
• Strong vested interest
• Minority shareholders
directly benefited on his
interest
• Monitor fellow managers

8. Institutional
Shareholders
• Exert effective influence
• Much greater chance of
success than individuals
• Are large shareholders
• Ex. Pensions Funds, Mutual
Funds, Insurance, Bank
trusts, Non-US Investors
• Organizations that invest in
securities
• Council of Institutional
Investors ( CII)

9. Types of Shareholders
A. Shareholder Proposals
-SEC rules permit anyone
owning more than $2,000 or
1 % of firm’s stock on
continuous basis for a
least a year to submit a
proposals to be considered
and voted on at a meeting
of the shareholders
-Rule 14a-8, the SEC gives
shareholders a method to

10. suggest changes in corporate
governance
• If it meets company by laws
requirements and related to
its business, company is
required to include summary
of the proposals to proxy
statement issued to all
shareholders at the annual
meeting
• Be voted by all shareholders

11. • If it passes, it becomes
binding or advisory on
management(depends on the
nature & types of proposals)
• Nomination for elections of
directors are prohibited
• Nominations are done under
the company’s internal
bylaws or independent
campaigns known as
Contested election of
directors or Proxyfight

12. Proposals includes:
 governance –oriented
1. antitakeover amendments,
2. shareholders voting
rules,
3. board compositions
 social goals
1. human rights abuses
--proposals do not pass,
especially those that go
against management desires

13. Proposals fails due
to:
 difficult and expensive
 management collects proxy
cards before the meeting
Proxy cards- give management
the authority to act on
behalf of the shareholders
in voting
Management controls the votes
of the uncommitted
shareholders

14. Contested Election of
Directors( Proxy
Fight)
• try to replace directors
serving on the board
Proxy solicitation
-attend the board nomination
process, and present your
choice for your directors
directly to the shareholders

15. Shareholders Lawsuits
 misconduct of officers and
directors gives shareholders
legal grounds to bring
lawsuits
GOAL OF LAWSUIT:
• To force the executives to
follow company by laws in
the actions they take
• To force the offending party
to pay the shareholders for
the lost value of their
stock

16. 2 Types of Lawsuits
1.Derivative Lawsuit
• “Derivative” because the
shareholders are not
actually the parties suing.
• A legal action
--where one or more
shareholders sue
the CORPORATION
--to bring suit against the
corporation

17. 2.Direct Lawsuit
• Shareholders themselves file
a lawsuit against officers
and directors of a company
• A legal action
• where one or more
shareholders sue DIRECTORS or
executives directly, rather
than through the CORPORATION,
for breach of duties.
Class action lawsuit- type of
lawsuit where all
shareholders join together in
a single lawsuit.

18. Professors Ferris, Jandik,
Lawless and Makhija
• Identified 215 derivatives lawsuits
filed against 174 companies over
the period 1982-1999
• They compared the following key
variables related to corporate
governance at the time the lawsuit
was filed.
• They found out that derivative
lawsuits can be an effective
corporate governance mechanism
because they can lead to changes in
the composition of the board

19. Does Institutional
Shareholders Activism work?
• According to one study
commissioned by CalPERS, Steven
Nesbitt of Wilshire Associates
conducted a before & after
analysis of 42 firms targeted for
reform by CalPERS. After the
analysis the stock return of the
42 firms for 5 year period are
52.5% higher.
• Michael P. Smith of Economic
Analysis Corporation conducted
another study of CalPERS Activism
works through gaining 19M for only
total Cost of 3.5M.

20. • However in another study,
author found that
shareholders activism did
not lead to any obvious
improvement in firm
performance.
• In conclusion, due to
inconsistent evidence,
whether activism really
changes firms for the better
is unknown.

21. Potential Road Blocks to
Effective Shareholder Activism
• Short-term view of the Investors
limits their desire to be
activist. They simply sell the
stock instead of working to change
the firm.
• In private pension fund,
private fund adviser face huge
conflict of interest problem.
Executive do not want to see
activism by shareholders because
it interface with their
activities, that’s why private
fund adviser that is activism do
not last in a company.

22. • Legal/political and regulatory
environment prohibits or
discourages institutional investor
from becoming too large, from
acting together and from becoming
significant owners.
• If there is no legal
restriction, shareholders activism
can be like the case of hedge
fund. It had success or partial
success, 2/3 of the time when they
proposed strategic, operational
and financial remedies for
companies in which they were large
shareholders.