October 09, 2015
In an examination of the impact of investor activism on company financial performance, a Wall Street Journal study published this week found that just over half of the 71 companies confronted by activist campaigns examined in the study had better stock price performance than their peers. The study looked at activist interventions at companies with market capitalizations of $5 billion and higher, starting in 2009. The rise of high-profile activist interventions has been led by major hedge fund moguls like Nelson Peltz, Bill Ackman, and Carl Icahn who purchase major stakes in some of the nation's largest and best-known corporations and push for significant change and structural overhauls. The media has often reported that activism is beneficial to the company bottom line and that activists function as a necessary check on company boards of directors. The Journal, however, examined the changes in earnings, margins, corporate spending, employee efficiency, and shareholder return versus peers and found that, while there were benefits to activism in some cases, whether or not activism is ultimately beneficial or detrimental to companies is a case-by-case determination. The Journal notes that the study bolsters the "increasingly popular conclusion" that the best approach for a company faced with an activist is to not resist, but to consider the proposals forwarded by the activist individually in context with that individual activist's track record and the time frame in which the activist seeks to make changes. It also notes, however, that it is difficult to study the long-term effect the activists have on a company, a view shared by Presidential Candidate Hillary Clinton who pledged tax reforms targeting "hit-and-run" activists. The study's data showed the most effective path for an activist to drive outperformance is through securing a board seat, as demonstrated by ValueAct Capital Management, which accomplished board representation in all its interventions included in the study and saw returns which outpaced its rivals. The study noted that out of the 71 companies studied, 46 activists requested board seats and 40 were successful.