What an activist investor actually does

Priya, you’re asking me to describe my own job, so take this with a grain of salt. I’ll try to be fair to both sides.

Most shareholders are passengers. They buy, they hold, they vote however the proxy adviser tells them to, and they sell if they don’t like the view. An activist is a shareholder who decides to grab the wheel instead.

Step one: buy enough to matter

You can’t change a company with a hundred shares. Activists build a stake big enough that the board has to pick up the phone, often a few percent of the company, sometimes much more.

Once you cross 5%, the market gets to know about it. In the US, an investor who goes over 5% with an intention to influence the company files a Schedule 13D with the SEC, and since the SEC’s 2023 changes that has to happen within five business days. In Australia, crossing 5% of a listed company means lodging a substantial holding notice, generally within two business days. That filing is usually the moment you see the headline “activist takes stake”.

Step two: the private conversation

Most campaigns start politely. A meeting with the chair. A letter that says, in effect: your shares are cheap because of X, and here’s what we think you should do about it.

What “X” is depends on the company. Common ones:

• Strategy: sell the division that’s dragging everything down, or stop buying businesses you don’t understand.
• Costs: the head office has grown faster than the revenue.
• Capital: you’re sitting on cash you have no plan for, so return it, or stop wasting it.
• Governance: the board is stale, cosy or paid like rock stars while the shares go nowhere.
• A sale: the company would be worth more in someone else’s hands.

A surprising number of these get settled quietly. The company “independently decides” to do half of what was asked, everyone shakes hands, and you never read about it.

Step three: go public

If the board won’t engage, the letter becomes an open letter. Then a presentation. Then interviews. The point is to get other shareholders, the big funds in particular, to agree that something has to change.

Step four: go after the seats

The heavy weapon is a proxy fight: nominating your own directors and asking shareholders to vote out some of the existing board. It’s expensive, it’s public and it’s ugly. It’s also the reason boards take activists seriously long before it gets that far.

A board that knows it can be replaced listens very differently to a board that knows it can’t.

Good guys or bad guys?

Both, depending on who’s doing it and what they’re asking for.

The good version: a company has been coasting for years, management is comfortable, the board never asks hard questions, and an outsider forces it to fix things. Every shareholder benefits, including the passive ones who never lifted a finger.

The bad version: an investor pushes for a quick sugar hit, loading up on debt to fund a buyback, slashing research or flipping the company to the first bidder, then sells out before the bill arrives.

So don’t judge the label. Judge the plan. Ask what the activist wants the company to do, whether it makes the business stronger in five years or just the share price in five months, and whether they’ll still be holding when the results come in.

Ray