Activist investing is an investment strategy in which an investor builds a stake in a listed company and then uses the rights that come with share ownership to press for changes it believes will raise the company's value. Typical demands include replacing directors, selling or spinning off a division, returning cash through dividends or share buybacks, cutting costs, blocking or pushing for a merger, or changing executive pay. The investor profits if the share price rises as a result, or as the market anticipates the changes.
Activists are usually specialist hedge funds, such as Elliott Management, Trian Partners, Starboard Value or ValueAct, though individual investors, pension funds and some private equity firms also run campaigns. Activism is related to, but more confrontational than, the corporate engagement and investment stewardship carried out quietly by large index funds and other institutional investors.
Activist investing in plain terms
Imagine a few neighbours who jointly own an apartment building managed by a hired caretaker. One neighbour buys extra flats, decides the building is badly run, and starts lobbying: sell the unused garage, fix the roof, stop paying the caretaker's cousin to paint the halls. If the caretaker refuses, the neighbour asks the other owners to vote in a new caretaker.
That is the activist's approach. It does not run the company itself, but it uses its votes, its voice and its ability to persuade other owners to change how the company is run, betting that the shares will be worth more afterwards.
How campaigns work
A typical campaign follows a sequence:
- Building a stake. The activist quietly buys shares, often a few percent of the company. In the United States, anyone who acquires more than 5 percent with an intent to influence control must file a Schedule 13D with the SEC; since February 2024 the filing is due within five business days rather than the previous ten days.
- Private engagement. The activist meets the board and management, presenting its analysis and demands.
- Going public. If talks fail, it publishes letters or presentations to win support from other shareholders, and the media.
- Proxy contest. The activist nominates its own candidates for the board and asks shareholders to vote for them through proxy voting. Since 31 August 2022, US companies must use a universal proxy card listing both sides' nominees, making it easier to elect a few dissidents.
- Settlement or vote. Most campaigns end in a settlement that gives the activist one or more board seats or some of its demands, without a full vote.
Notable campaigns
Activism grew out of the corporate raiders of the 1980s, such as Carl Icahn, who used the threat of a hostile takeover or leveraged buyout to force change. From the 2000s, specialist funds made it a mainstream strategy. In 2021, a small fund called Engine No. 1, holding about 0.02 percent of ExxonMobil, won three board seats by arguing that the oil company needed a clearer energy-transition strategy, a rare case of an activist campaign gaining support on ESG grounds. In 2024, Trian Partners lost a proxy contest for seats on the board of Walt Disney after most shareholders backed management.
Activism has spread beyond the United States. Activists have become far more active in Japan since the Tokyo Stock Exchange asked listed companies in 2023 to improve their capital efficiency, particularly those trading below book value. Campaigns are also common in the UK, continental Europe and South Korea. Frequent targets include a conglomerate whose shares trade below the sum of its parts.
The debate
Supporters argue that activists reduce agency costs by holding managers to account where dispersed shareholders lack the incentive to act, a classic remedy for the principal-agent problem. Empirical work by Lucian Bebchuk, Alon Brav and Wei Jiang, published in 2015, found that share prices rise when activists announce stakes and that targets' operating performance tends to improve in the following years, with no evidence that the gains reverse.
Critics, including many company advisers and some economists, argue that activists focus on shareholder value at the expense of employees, research spending and long-term investment, fuelling short-termism. They point to campaigns that load companies with debt to fund buybacks, or that push for asset sales critics describe as close to asset stripping. Others worry about "wolf packs" of funds acting together without disclosure, and about activists who also hold derivatives or short positions with different interests from ordinary owners. Supporters of stakeholder capitalism argue that boards should weigh interests beyond those of the activist; defenders reply that activists cannot win without persuading the majority of other shareholders, including long-term pension funds.
Activism and corporate governance
Activism has reshaped how boards behave even where no campaign takes place. Many companies now review their business portfolio, capital returns and board make-up in advance to avoid becoming a target, a practice sometimes called "thinking like an activist". Regulators have responded by updating disclosure rules, as with the faster 13D deadline, while stewardship codes in the UK, Japan and elsewhere encourage institutional investors to engage with companies more actively themselves.