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Home > Financing Best Practice > Managing Activist Investors and Fund Managers

Financing Best Practice

Managing Activist Investors and Fund Managers

by Leslie L. Kossoff

Executive Summary

  • Organizations not previously of interest to activist investors or hedge funds should prepare to be targeted.

  • Be proactive in understanding why investors become agitators, and address their concerns before they escalate.

  • Organizational governance—particularly the combined chairman/CEO position—and financial management will be the easiest targets for activists.

  • Activists often succeed because they communicate better than management—particularly to tagalong investors who become part of the proxy fight.

  • Unlocking stockholder value and simultaneously developing and executing on a long-term strategy will give activists less reason to agitate and less success with tagalongs; executive management will then have a less volatile financial landscape within which to work.


Whether or not your organization has been a target in the past for activist investors and fund managers, you have to plan on it becoming a fact of life from now on—things have changed.

It used to be that only a few organizations were hit by activist investor activity. From the almost prophetic, and beautifully constructed, Benjamin Graham move on Northern Pipeline in 1951, to Carl Icahn’s dramatic moves on Yahoo! during the “Microhoo” (Microsoft–Yahoo!) debacle of 2008, activist investors were a rarity—something other organizations had to deal with. A problem for the really Big Boys. Not everyone else. Not you.

Not any longer.

Whether or not you have any known activist investors currently rearing their heads, you’ll have to plan for when they show up—because they will. If you work it right, proactively, as well as when the activism hits, you’ll manage your way through those very choppy waters and find a safe haven at the end.

Why Investors Become Activist

Historically, the reason that most activist investors became active was because they saw something wrong with the way things were being managed. The value of the company was not fully represented in the share value. Management was taking the organization in a direction—usually with a direct correlation to falling share value or dividends—that was making the investors unhappy.

But those reasons are historical, and they were retrospective. One of the big changes is that now investors become activists proactively. They see things on the horizon that they don’t like, and they act accordingly. Not only may they not be happy with what has happened in the past, they’re also not happy about what they see coming next.

For management, that is a wake-up call in the best possible way. It puts the onus on you to look at those components of your business that might lead investors to become activist—and take action accordingly. Because if they’re seeing something they don’t like, either they need to understand why it is the right thing for the business to do, or you need to take a different, objective, look at what they’re not liking so that you can determine the relative merit of what they see.

Also, by looking at the organization the way the activists do, you will see other weaknesses—in everything from your strategy, to your operations, to your financial management—that might be the next focus of their attention. You don’t want that; you want to make the fix before they ever have the chance to raise their voices.

Too Good an Opportunity to Miss

And then there are those activist investors who get in because they see something that your company has to offer that is just too good an opportunity to miss. It may be because they have a history of being activist and simply see a new opportunity on which to bring their activist skills and financial acumen to bear. Or it may be because your company is such a good target for some other opportunity which you’re not considering (like M&A) that they want to get in and make fast money. Whatever the reason, they’ll find a way.

Activist investors have a profile. They are identifiable, as is their methodology. Part of that methodology is to get others who own shares in your company to tag along. In most cases, they can’t pull off what they want on their own. They need proxy votes. That being the case, they’re making a case to their counterparts that you have to counter in its entirety.

Activist investors identify where your organization is exposed. That’s where their opportunities lie. Then, once they’ve got a handle on where, from their perspective, you’re going wrong, their next move is to start communicating that shortfall to others they can bring on board. They create the tagalongs. Tagalongs start out knowing nothing more than what they are told. Many of them, on seeing where the activists are going, will become involved in finding out information for themselves—but those tend to be the larger investors who already have analysts working your organization or your sector anyway. If the activists can get enough small investors involved and on side, they’ll win.

On your side is that if you can identify those activist investors and fund managers with large stockholdings in your firm, you will be able, with a high sense of assurance, to begin figuring out what their strategy will be. Track their track record.

Then, if you’ve done your homework and figured out where your exposure lies, you’ll be able to address those problems before the activists can take the initiative. You will also be in a stronger position to tell all your investors—especially those proxy candidates—exactly what you’re doing, and why the management is on top of the problems and opportunities that everything from economic conditions to global competition are throwing your way.

Activists can’t win if management is doing its job—and well.

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Further reading


  • Burke, Edmund M. Managing a Company in an Activist World: The Leadership Challenge of Corporate Citizenship. Westport, CT: Praeger, 2005.
  • Schroeder, Alice. The Snowball: Warren Buffett and the Business of Life. London: Bloomsbury, 2008.


  • Greenwood, Robin, and Michael Schor, “When (not) to listen to activist investors.” Harvard Business Review 86:1 (2008). Online at:
  • Levin, Timothy W., and Phillip T. Masterson. “Implications of hedge funds as activist investors: No longer flying under the radar.” Investment Lawyer 13:10 (October 2006): 19–26.


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