Recent data from FactSet's SharkWatch service demonstrates that activist investors are enjoying a remarkable level of success. Often the filing of a 13-D and a bit of saber rattling are enough to get companies to snap to attention: since 2006, activist shareholders have been awarded 218 board seats at public companies -- and only had to go through proxy fights for 28 of them. Most of the time, companies willingly offer seats as a truce.
The reasons behind this trend are interesting. It may be that, unlike the 1980s when there was great suspicion of "corporate raiders," most investors recognize that having outsiders with large paid-for-in-cash stakes on the boards is almost always a good thing; their interests are aligned perfectly with outside shareholders, and so big investors are willing to support them. Current executives know that and decide that it's better to concede than go through a proxy fight that will take up resources and, very possibly, lead to the ousting of the entire board.
In a column (subscription required) in The Wall Street Journal, Dennis K. Berman makes a bold prediction about where the future for activists might lead: "As power leaches away from the board room to the shareholder, much will travel along with it. That includes the relationships that form the basis of so much board room power. . . the incentives are changing for everyone, meaning that some investment banks will push ever closer to the best activist investors, dispatching whatever small stigma remains with such work. The same goes with the best executive talent, who may choose to align itself with a group of outside investors in the same way that private-equity firms develop a stable of top managers."
The irony here is that this is exactly the power structure that was developing in the 1980s when Michael Milken's junk bonds were fueling hostile takeovers. That era ended for all the wrong reasons when Milken was hauled off to jail on trumped up charges and a slew of bad deals collapsed amid excess, but it was the beginning of an important new world where the goal of increasing shareholder value is a reality instead of a myth. If top investment banks demonstrate a willingness to work closely with activists, shareholders and the economy as a whole will prosper.
The future of activist investing looks bright
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