A public limited company is considered to be owned by all its shareholders and technically, each of them has a right to vote in the Annual General Meetings and Extraordinary General Meetings. In fact, the firm is legally bound to invite the stockholders for such meetings and inform them of the particulars like venue and date. However, more often than not, shareholders with minor stake in the firm refrain from even attending such events.

Many important decisions such as appointment of directors and takeover are taken in these meetings which have a huge impact on the present and future of the company. A company’s stakeholders’ financial interest is also affected by the well-being of the enterprise and they can choose to intervene in these important affairs in order to protect their interests. Besides, some shareholders may also consider it their moral responsibility to restrict the firm from getting involved in any unethical practices such as employee exploitation or hostile takeovers. Driven by such motives, a few among the large number of investors in a firm decide to take matters in their own hands when they disagree with a management decision. This is now popularly known as investor activism.

Contrary to this reformist attitude, the passive investors choose to stay invested as long as the company does well and quickly get rid of the stock if they anticipate that the management is not working in the interest of the firm. Still others do not even offload their share in the company when things are not going the right way. In the long run, imprudent management decisions may have an effect of bringing down the stock price and a depletion of shareholder value. Investor activism intends to address these issues and preserve the shareholder value.

Shareholder resolutions and proxy battles are some of the ways in which activist stockholders can express their views. But they may also take more aggressive steps like public campaigns and legal action against the management. Activism is generally an effort of the investment management funds rather than individual investors since they do not only have more motivation but also required resources and expertise in the area to undertake such activities when compared to their individual counterparts.

Investor activism is considered as a kind of blackmail by some corporations since it has, in some cases, been used by unscrupulous investors to extort money out of the management by forcing them to take a particular decision or buying back their share at a considerable premium. But such cases have been few and far apart and most of the activism is directed towards the unjustified management compensation in public companies and questionable management practices. Besides sustainability, human rights and Corporate Social Responsibility (CSR) have also been major themes of many activist endeavors.

An enlightened and active investor can add value to an organization and thereby, to many other investors of the company by exercising his/her right and keeping the management practices in line with overall shareholder interest.