The Value of Shareholder Activism

Vocal and aggressive investors play a critical role in holding management teams accountable.

When it comes to shareholder activism, the battle lines have been drawn. On one side are investors who refuse to stand idly by when they believe companies in which they own shares are being mismanaged. As Jonathon Jacobson, of Highfields Capital Management, a well-regarded Boston hedge-fund manager, puts it: "Poor management is able to persist because shareholders aren't willing to do anything about it. That inaction is an abdication of responsible ownership and fiduciary duty."

On the other side are executives and directors, who often consider investors who agitate for change to be nothing but fast-buck artists. In a memo to clients that was widely circulated a few years ago, Wachtell, Lipton, Rosen & Katz, a New York City law firm that often represents corporate boards against activist shareholders, described its typical defense: "Expose the attackers for what they are: self-seeking, short-term speculators looking for a quick profit."

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Whitney Tilson
Contributing Editor, Kiplinger's Personal Finance