Activist investors are becoming increasingly important in today’s market due to the rise of passive investing, low interest rates and environmental, social and governance (ESG) concerns. With only one in three dollars invested by institutions actively allocated in America’s thousand largest public companies, passive asset-managers have not been designed to spot underperforming bosses or lazy boards. Efforts to enfranchise the ultimate owners of funds have failed as these individuals want to earn returns but leave decision-making up to others. The presence of activists is a welcome reminder that it is owners, not managers, who should run firms. Activists can help boost profits and apply discipline, especially given that leveraged buy-outs by private-equity firms are unlikely in a higher interest rate environment. Activists’ jobs are getting easier with new rules allowing shareholders to vote for candidates individually rather than as a bloc making it simpler for them to obtain board seats.
