What do activist investors aim to achieve?

By Harper Banks

If you had the financial means to invest in a company so that you can enact the change you want to see in the world, would you do it? There is a growing group of individuals who would, and these are known as activist investors.

We dig a little deeper to find out what these investors aim to achieve, and we consider whether their actions are aligned with the emerging “woke” culture. 

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Unpacking activist investment

Activist investors purchase a significant portion of a company with the intent of influencing how it’s run. Often this impact is attained by gaining a position on the company’s board, and it is usually pursued by wealthy individuals, hedge funds, or private equity firms.

“An activist investor is someone who is trying to drive change by how they deploy capital. Put in another way, they invest money in the changes they want to see,” says Sarah Dusek, co-founder and general partner at Enygma Ventures.

She says that Enygma Ventures considers itself an activist investor as they drive gender equality and opportunities for women.

“We aim to create seats at the proverbial table for women, enabling them to build big businesses and have opportunities to create wealth,” says Dusek.

Activist investors typically select mismanaged and underperforming companies, and use their business knowledge to fix performance and exponentially grow profits.

For example, Dan Loeb’s hedge fund, Third Point, purchased a significant share of Disney. In 2020, they recommended that the company reduce the dividends they pay their shareholders, and rather focus on developing their streaming service.

This decision would reduce their own profits, which goes against the main purpose of investing. However, it would help Disney prepare itself for its modern-day viewers’ preferences, which would grow the company over the long term and lead to greater returns.

Activist investment and “woke” culture – a non-synonymity

Deon Binneman, who’s been involved with the reputation management landscape for many years, says that Larry Fink's recent letter, Stakeholder capitalism is not woke; just good business, gives a good description of the non-synonymity between the two activities.

He argues that activist investors have nothing to do with pushing a progressive political agenda. Instead, it’s the embodiment of true capitalism, where companies don’t just serve the interests of stakeholders, but also the broader community in which they operate. By doing this, he believes, businesses are likely to make the largest profit.  

Effective stakeholder capitalism, Binneman notes, is underpinned by effective stakeholder engagement, clear corporate purpose, and innovation. This can improve both financial and social outcomes over the longer term.

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