A recent panel at Tulane's Corporate Law Institute discussed the rise of activist investors, with participants including a corporate public relations man, representatives from proxy solicitation firms, a representative of a firm that helps companies fight activists, and a lawyer who has represented William Ackman, one of the most prominent activist investors going.

The New York Times' DealBook reports that "Dan Burch of the proxy solicitor firm Mackenzie Partners lamented how some defenses aimed at thwarting activist proxy fights, like staggered boards that only put a small number of directors up for election in a given year, are failing. Many activists are now nominating full slates of director candidates, and companies are giving in by ceding some seats in any election."

What exactly is wrong with that? To be sure, there are cases where activist investors are wrong and the goals that they achieve do not maximize shareholder value. But I would posit that this is the exception, not the rule.

Activist investors -- who profit only from a rise in the company's share price -- are the only people who truly have their interests aligned with shareholders. Executives and directors may be motivated by salaries, perks, ego, etc.

In addition, activists generally move in on companies where the current management team's strategy has failed to generate value. Most companies that are targets of activist hedge funds have long track records of destroying shareholder value. A company that's been creating value at a good clip for shareholders has a compelling response to activists: "Our strategy has worked and we think it will continue to work. Leave us alone!"

Activist investors aren't a problem. They are the solution to the problem of a lack of accountability at the highest levels of public companies.

Back in November, I wondered whether hedge fund genius William Ackman was barking up the wrong tree with his 17% stake in Borders (NYSE: BGP). Since then, the stock has declined from over $10 a share to less than $5. Ackman has shown tremendous commitment to his stake in the company, but I'm still skeptical. The stock is down 34%, in spite of the company's announcement that it is exploring strategic alternatives. The problem is that, in addition to that rosy decision, the company reported pretty ugly fourth quarter and year-end results. Oh, and the company also suspended its dividend to conserve cash.

But Ackman's Pershing Square Capital is staying strong. In light of the company's tight cash position, the fund lent $42.5 million at a 12.5% interest rate, and also agreed to purchase the company's Paperchase, Australia, New Zealand and Singapore subsidiaries for $125 million if Borders decides it wants them to. Ackman's fund also receives 14.7 million warrants to purchase Borders stock at $7 per share -- warrants which are badly out of the money.

But back to the strategic alternatives thing: the company hired JPMorgan and Merrill Lynch to help conduct a "review process will include the investigation of a wide range of alternatives including the sale of the company and/or certain divisions for the purpose of maximizing shareholder value."

The plummeting share price is indicative of the street's skepticism that anything will get done, and I understand why. Given Borders' lack of profitability and a business model that is becoming obsolete, I don't understand why anyone would want to buy Borders.

But this is a contrarian play, and today's plunge has sent Borders' stock into a position where it's trading at a large discount to its book value. But the declining fundamentals could scare off many suitors. I'll be watching this one from the sidelines.

When activist investor William Ackman comes to town and starts buying your shares, you can bet he'll be hounding the board for changes soon. That's the case with discount retailer Target Corp. (NYSE: TGT), as Ackman now owns just under 10% of the retailer's shares. What does he have in store? Quite a few changes that should boost the retailer's stock price in the next three years and give Ackman a handsome return on his investment.

First up was Ackman's suggestion that Target sell off its credit card operations -- something that management said would be considered. Just under three weeks ago, Target officials cited "market conditions" as the reason a decision to spin its credit card business had been delayed. In other words, Target probably had not found a buyer for the debt portfolio due to consumer credit having been tightened like a noose in the last calendar quarter of 2007.

What else did Ackman have in mind? He believes the company's shares could be worth $120 each within 36 months, based on an investor letter he wrote on December 27. On tap was Target's need to complete its $10 billion stock buyback and start ramping up cash flows based on all the real estate the company holds -- which Ackman pegs at $42 billion in worth. That's roughly Target's entire market capitalization, so the question becomes one of how Target is going to make money outside of selling diapers, pretzels and spring apparel. Expect those questions to be answered on Target's next quarterly results conference call on February 26.

To the casual observer, Target (NYSE: TGT) might seem like a bizarre choice for a shareholder activist to get involved with. The company's stock has been a strong performer since its beginning, and recently hit a new all-time high. But William Ackman's Pershing Capital Management has put together a 9.6% stake in the retailer.

According to the 13-D filing announcing the holding, Ackman believe Target is"a leading domestic retailer with a differentiated brand,significant growth opportunities and the strongest operating management in the retail industry. The Reporting Persons believe that the Issuer's Common Stock is undervalued and intend to discuss with management ways in which this undervaluation can be corrected."

Should investors jump on? Analysts think it's unlikely that Ackman will be able to extract any major changes from Target management, and may find little support from big investors -- With a stock that has performed so well, many will be content to let management do its thing.

But Ackman has a pretty nice track record himself. According to Barron's, Pershing earns an average of 35.2% on its 13-D investment where it takes activist steps.

At the very least, Ackman's characterization of the "strongest operating management in the industry" has to make you consider investing in the company.