There is a TL;DR at the bottom, but I encourage you to read the whole post, it will be worth it.
I've heard a lot of people voicing their dissatisfaction, anger, and contempt, for how the cost of living is too high, wages are too low, corporations are taking advantage of the vulnerable, etc. And these feelings are completely valid. It feels like the system is set up for the rich to take advantage of the poor and things are not fair, wouldn't you agree?
So why don't we level the playing field and allow me to introduce the concept of Shareholder Activism (the term Activist Investor is also used). You might have heard of this term as it has been used by the media to describe Ryan Cohen and Carl Icahn. But what is it exactly and how can The People use Shareholder Activism to their advantage?
Before we get into Shareholder Activism, let's refresh our knowledge of what a Shareholder is.
Shareholder:
A shareholder, also known as a stockholder, is an individual (You) or entity (Blackrock, Hedge Fund, Bank etc.) who owns shares (stock) in a corporation. A corporation issues shares of stock to raise capital, and each share represents a unit of ownership in the company. Shareholders are entitled to a portion of the profits and assets of the corporation in proportion to their ownership stake. They also have certain rights, such as the right to vote on corporate matters, receive dividends, and sell their shares.
As you see the graphic above, if you are not a shareholder then any profits the company makes you are not entitled to. You are basically a consumer giving your money to the company. But as a shareholder, you are entitled to profits the company makes, but also, you are entitled to vote on how the company is operated; this is the important part of Shareholder Activism. Being a shareholder with voting power is how to effect change.
Shareholder Vote:
This is going to be a deeper technical description so that you can have a greater understanding for when we get into Shareholder Activism, but I will give a simpler description after, so please bare with me:
A shareholder vote is a decision-making process in which shareholders of a corporation cast ballots to approve or reject certain proposals put forward by the company's management or by other shareholders. The proposals may relate to a wide range of matters, including changes to the company's bylaws, the issuance of new stock, mergers and acquisitions, and the election of directors.
The process of a shareholder vote typically begins with the distribution of a notice of the meeting, which outlines the proposals to be considered and provides information on how shareholders can cast their votes. Shareholders may vote in person at the meeting, by proxy, or by mail. If a shareholder is unable to attend the meeting in person, they can designate someone else to vote on their behalf by completing a proxy form.
The outcome of the vote is determined by the number of shares held by each shareholder and the number of shares that are voted. In most cases, a proposal must receive a majority of the votes cast in order to be approved. However, the specific requirements for a proposal to pass may vary depending on the corporation's bylaws and the laws of the jurisdiction in which it is incorporated.
It's important to note that not all shareholders may have equal voting rights. For example, some corporations issue multiple classes of stock, each with different voting rights. Additionally, some large institutional shareholders may have a disproportionate influence on the outcome of the vote due to the large number of shares they hold.
Simply put, either the companies management, or a shareholder, proposes an idea that would cause significant change within the company. Everyone hears the proposal then votes. If the majority agree then this proposal will happen.
For example, as a shareholder you believe workers are not making enough money, you propose to the company to pay the workers more money. Everyone votes, and if everyone agrees then the workers will get paid more money.
Sounds simple enough to effect change, but what happens when there are, for example, 100 shares of a company and you only own 1? You own 1% of the shares, how will you convince the other 99%? What happens if you know the other 99% don't care about the works pay and just want increased profits?
You can either:
- try to create a convincing argument to change their mind, or
- buy their shares and increase your voting power so you will have 51% of the vote to get your way.
Number 2 sounds easier, but where are you going to get all that money to buy 50 more shares? You could find people who also care about the workers and everyone buys shares until you, as a group, have enough shares to swing the vote to your favour.
Enter Shareholder Activism
What is Shareholder Activism?
Shareholder activism, in it's simplest form, it when a group of individuals, or groups of groups, band together for the purpose of influencing and creating change within a company. This is accomplished by buying enough shares in a publicly traded company to hold enough voting power to force matters of concern to be put to a vote. Like any voting system, when the majority wins the items that was up for vote becomes the new way of doing things.
Real World Examples
Here are some examples when activist investors managed to bring changes to the board of a company[1]:
ExxonMobil
Exxon Mobil Corp was the most recent example of a large corporation being humbled by an activist shareholder. The company lost two board members after Engine No. 1, a hedge fund, put forth its own nominations for shifting the company away from fossil fuels.
Chevron
Fellow oil giant Chevron also had to bow down to shareholder activism. The company found most of its shareholders rebelling against the vote of its board in support of an activist proposal from Dutch campaign group.
Westpac Banking Corporation
Following a largely publicised money laundering scandal, revolting activist shareholders managed to get CEO Brian Hartzer and chairman Lindsay Maxsted to resign.
Hugo Boss
Oil companies and banks are not the only companies that have to face shareholder activism. Earlier in the year, Hugo Boss announced the resignation of CEO Mark Langer due to pressure from activist investor Bluebell Capital.
P&G
After one of the costliest and longest proxy corporate trials, Trian Fund Management managed to get its CEO and founder, noted shareholder activist Nelson Peltz, to the position of directorship in the company.
Be the Shareholder Activist
There are many Shareholder activist funds out there, but, in my opinion, they are not bringing about meaningful change the average person needs from a company. There is no reason that a group of average individuals cannot group their money together to form a Shareholder Activist Fund to effect real change.
If enough people pooled their money together and bought enough shares in Walmart, then a proposal could be put forward to increase the wages of Walmart employees. In fact, let's see what that would look like.
There are just over 2.7 billion shares of Walmart outstanding. at a current price of $141 USD.
Ryan Cohen managed to effect change with owning only 10% of shares (correct me if this number is wrong). So 10% of 2.7 billion is 270,000,000 shares. Multiply that by the current share price of $141 and you get $38,070,000,000. That's a lot of money eh. But let's not focus on the money, let's focus on the number of shares of 270,000,000. To own 10% of Walmart ou would need 54 million people to buy 5 shares at a individual cost of $705 USD.
The total number of people over the age of 18 in the U.S. is 258,327,312. You would need 21% of the U.S. population to own 10% of Walmart. That may sound like a lot of people to try to convince to buy Walmart to be a Shareholder Activist
BUT!
Walmart does not just operate in the U.S., it is a global company. It is estimated (according to ChatGPT) that there are over 5.8 billion people in the world over the age of 18.
Therefore, you would need to convince only .09310344827% of the worlds population to buy shares in Walmart.
Who is the top 1% now?
TL;DR
My point is, the power of change has always, and will always, be in the hands of The People. With the power of the internet, there is no reason why you cannot organize ourselves to enact change through Shareholder Activism…you're just going to have to roll up your sleeves and do some work.
My example can be applied to any publicly traded company to force change within the system.