# Activist Investor Explained: Definition, Role, and Leading Players

![Activist Investor: An individual or institutional investor that buys a significant minority stake in a publicly traded company to change how it is run.](https://www.investopedia.com/thmb/tD_ztdoAVd0m-T6eO4jG26nyt4Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/activist-investor.asp-final-dc255d90154641f2b50ad3edb0b64711.png)

*— Investopedia / Mira Norian*

> **Definition**
>
> An activist investor is a shareholder who acquires a significant minority stake in a publicly traded company to influence its management and operations.

## What Is an Activist Investor?

An activist investor is a shareholder in a [publicly-held company](https://www.investopedia.com/terms/p/publiccompany.asp) with a significant minority stake who tries to convince or force the company to make changes. The activist investor's goals might involve influencing management decisions on various topics, replacing [directors](https://www.investopedia.com/terms/b/boardofdirectors.asp), altering operations to improve company value, or forcing a sale of the company. Or, they may focus on maximizing shareholder value or on the company's social responsibilities.

Activist investors usually try to win other shareholders to their side with public communications and private discussions. They may also attempt a [proxy contest](https://www.investopedia.com/ask/answers/08/how-do-proxy-fights-work.asp) to achieve their objectives.

### Key Takeaways

*   Activist investors buy minority stakes in public companies to influence management and drive change.
*   They may engage in proxy fights or use public communication to sway other shareholders.
*   Activist investors focus on enhancing shareholder value, often employing confrontational tactics.
*   The SEC has proposed changes that could impact activist investing, but activity remains high.
*   Successful activist campaigns can lead to significant increases in the market value of target companies.

## Exploring the Role and Impact of Activist Investors

Activist investors, or shareholder activists, can also be those pushing companies to improve overseas working conditions or support climate change efforts..

However, many activist investor campaigns seek only to maximize [shareholder value](https://www.investopedia.com/terms/s/shareholder-value.asp), and most of those are the work of hedge funds specializing in the unique mix of public pressure, behind-the-scenes lobbying, and business expertise required.

Unlike the public pension funds and mutual funds that also engage in activism at times, activist hedge funds may hold highly concentrated stakes and supplement them with additional [leverage](https://www.investopedia.com/terms/l/leverage.asp) from [derivatives like stock options](https://www.investopedia.com/ask/answers/070615/what-difference-between-derivatives-and-options.asp) to offset the considerable cost of such campaigns. In contrast with [institutional investors](https://www.investopedia.com/terms/i/institutionalinvestor.asp) that sometimes turn to activism after owning a disappointing investment for years, activist hedge funds typically buy a stake in an underperforming company shortly before calling for change, and hope to profit from the resulting turnaround and price appreciation.

In contrast to institutional investors, activist hedge funds are also more willing to use confrontational tactics, from poison-pen letters to management and unflattering public reports to proxy fights seeking to oust incumbent directors.

> **Tip**
>
> The rise of activist investors has been described as an effective market response to the agency problem, which arises when agents (in this case company managements) have the opportunity and the means to enrich themselves at the expense of clients (in this case shareholders—a diffuse group with limited powers to safeguard its ownership interests.)

## Tactics Used by Activist Investors to Influence Change

Investor activists often announce their campaigns by filing a [Schedule 13D](https://www.investopedia.com/terms/s/schedule13d.asp) form with the U.S. [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp), which must be filed within 10 calendar days of acquiring 5% or more of a company's voting class shares.

Qualified institutional investors and passive investors, meaning those not trying to acquire or influence control of the company, may instead file a simplified [Schedule 13G](https://www.investopedia.com/terms/s/schedule13g.asp) with less stringent disclosure requirements and thresholds. Schedule 13D filers must disclose, among other facts, their reasons for acquiring the stake and any plans they may have for the company in terms of mergers and acquisitions, asset disposals, capitalization or dividends, or other policies.  

The initial 13D filing gives the activist investor a golden opportunity to publicize their case for change at the targeted company. At the same time, the filing curtails the activist's ability to alter their stake in, and plans for, the company out of the public eye. Any changes to the facts disclosed on a Schedule 13D must be reported in an amended filing "promptly," under current SEC rules.

Activist investors may use amended Schedule 13D filings to comment on a company's response to their proposals. For example, when Netflix, Inc. ([NFLX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=nflx)) adopted a [poison pill](https://www.investopedia.com/terms/p/poisonpill.asp) after funds affiliated with [Carl Icahn](https://www.investopedia.com/articles/financial-theory/08/carl-icahn-lift.asp) reported a stake of nearly 10% in the video streaming company, the funds filed an amended disclosure calling the poison pill "an example of poor corporate governance." Activist investors may also write sharply worded letters to incumbent managers, issue press releases arguing their case to other shareholders, or privately lobby institutional investors to side with them.  

> **Important**
>
> Activist investors must use persuasive tactics. Without a hostile takeover, they need to convince enough shareholders to either replace the board in a proxy fight or credibly threaten to do so.

## Trends and Future Outlook for Shareholder Activism

There has been a claim that "activism is dying," lamented Carl Icahn in May 2022, contrasting the legendary investor's few-holds-barred approach seen in the past. Some have feared the changes proposed to the Schedule 13D disclosure requirements in 2022 constitute a pressing threat, with Elliott Investment Management stating publicly that the proposed rules "will virtually shut down activism."

In February 2022 the SEC had proposed shortening the initial Schedule 13 filing deadline from 10 calendar days to 5, with amendments due within a day of a material change rather than "promptly" as currently. The proposal, if passed, would effectively force 13D filers to specify holdings of derivatives (such as options) that confer an economic interest in the company without the shareholder rights associated with an outright stock position. Perhaps more controversially, the proposed rules would no longer require investors to agree to act in concert and be designated a single group by the SEC for Schedule 13D reporting purposes. Rules have also been proposed to make it harder for activist shareholders to squash a company's environmental or other pro-ESG initiatives.

SEC Chair Gary Gensler argued the stepped up requirements proposed would address "an information asymmetry" between activist investors and other shareholders. Critics countered the proposed rules would make activism unprofitable by making it more difficult and costly for activist investors to accumulate significant stakes, while inhibiting communication among shareholders.

Despite proposed rule changes, shareholder activism seems to continue at a steady pace, for now. For example, activist investor Nelson Peltz reportedly made a profit of more than $150 million by acquiring shares of Disney (DIS) in November 2022, in a move that prompted a proxy fight against the returning CEO, Bob Iger; however, this brief fight was called off after Iger announced a restructuring plan that is expected to save the media giant $5.5 billion in costs and cut 7,000 employees. Peltz has expressed satisfaction with the company's direction and decision to make changes, praising Iger and his management team. In early 2023, ValueAct Capital Management, a San Francisco-based activist hedge fund, took a stake in streaming media company Spotify Technology SA (SPOT), with the goal of cutting costs and streamlining management. ValueAct has also disclosed a major position and board seat in SalesForce (CRM), which now has no less than five large activist investor shareholders on board with long positions, resulting in early 2023 cost cutting measures that include layoffs of 10% of the company's employees. In all three of the these examples, markets have reacted positively to the inclusion of activist shareholders, seeing their share prices afterwards outperform.

## Do Activist Investors Ever Settle With Companies?

Yes, because activist investing is not a [zero-sum game](https://www.investopedia.com/terms/z/zero-sumgame.asp). Since activist investors and incumbent managers share an interest in the company's success, they may sometimes agree to a mutually acceptable compromise. Such agreements typically grant the activist investor representation on the company board in exchange for a pledge to support management and the company's director nominees for a specified time. The agreements may also specify steps management will take at activist investors' behest, while including [standstill](https://www.investopedia.com/terms/s/standstill_agreement.asp) provisions preventing the activist from increasing their stake in the company or requiring them to maintain a specified minimum stake.

## Is Shareholder Activism Dying?

While some fear recently proposed SEC rule changes may put a damper on activist investing, it has not yet seemed to slow down. After taking a dip in 2020 and 2021 due to COVID19 restrictions, activist investors were seen back above 2019 levels. In fact, shareholder activism activity hit a record high in 2022. Some predict this upward trend will continue through 2023 and beyond despite regulatory roadblocks that may be put in the way, although only time will tell.

## Do Activist Investors Create Value?

Activist investors have been effective at times in addressing the agency problem faced by shareholders whose interests don't always coincide with those of entrenched management teams. They've certainly created value for themselves and other shareholders. Activist investing can't easily be pigeonholed as [good or bad](https://www.investopedia.com/articles/stocks/09/activist-investors.asp), however. Activist investors look out for themselves and realize the lion's share of the value they unlock. Their relatively short-term focus on strategies likely to lift the share price, such as [return of capital](https://www.investopedia.com/terms/r/returnofcapital.asp) to shareholders in the form of [dividends](https://www.investopedia.com/terms/d/dividend.asp) or [share buybacks](https://www.investopedia.com/articles/02/041702.asp), can prevent companies from making needed long-term investments.

## Which Activist Investor Generates the Largest Share-Price Gains at the Outset?

It is difficult to know for sure which activist investors have been the more successful dollar-for-dollar and what other factors may cause particular stocks to rise in addition to an activist taking on a stake, but we can look to SEC disclosures and public statements made by these investors. Elliott Investment Management, for one, claims that its investments receive an average rise of 8% in the shares of the target company on the day the firm made its stake public. According to Elliot, its activist engagements have increased the market values of the targeted companies by an aggregate of more $30 billion.

## Who Are the Biggest Activist Investors?

The largest activist shareholders by assets under management (AUM) as of Q1 2023 are listed in the table below, led by New York City-based Third Point Partners:

## The Bottom Line

Activist investors use their significant minority stakes to push for change at publicly-listed companies. Typical tactics used by activist investors to win the support of other shareholders and management include proxy fights and public or private communications. Their demands can be for cost cutting, layoffs, streamlined management, and the sale of unprofitable units. Their goals can be profit for themselves (and clients), maximizing shareholder value, and, sometimes, addressing corporate social responsibilities. Successful activist campaigns that improved market performance occurred at Disney and Salesforce.

> **Article Sources**
>
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>     
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>     
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>     
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>     
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>     
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>     
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>     
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>     
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>     
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>      
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>      
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>      
> 13.  U.S. Securities and Exchange Commission. "[SEC Proposes Rule Amendments to Modernize Beneficial Ownership Reporting](https://www.sec.gov/news/press-release/2022-22)."
>      
> 14.  Harvard Law School Forum on Corporate Governance. "[SEC Proposes Amendments to Schedules 13D and 13G](https://corpgov.law.harvard.edu/2022/03/06/sec-proposes-amendments-to-schedules-13d-and-13g/)."
>      
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>      
> 16.  Bloomberg. "[The SEC Wants to Stop Activism](https://www.bloomberg.com/opinion/articles/2022-03-24/the-sec-wants-to-stop-activism)."
>      
> 17.  Business Insider. "[Activist investor Nelson Peltz reportedly scored a $150 million profit in his 3-month proxy fight against Disney](https://markets.businessinsider.com/news/stocks/nelson-peltz-disney-proxy-fight-150-million-profit-trian-iger-2023-2)."
>      
> 18.  Reuters. "[Activist investor ValueAct takes stake in Spotify](https://www.reuters.com/markets/deals/valueact-takes-stake-spotify-2023-02-10/)."
>      
> 19.  CNBC. "[Yet another activist targets Salesforce — further validation there’s money to be made in the stock](https://www.cnbc.com/2023/02/09/dan-loebs-third-point-becomes-fifth-activist-investor-in-salesforce.html)."
>      
> 20.  U.S. Securities and Exchange Commission. "[Exhibit 10.1: July 20, 2022 Agreement Between LivePerson, Inc. and Starboard](https://www.sec.gov/Archives/edgar/data/0001102993/000121390022040737/ea163030ex10-1_liveperson.htm)."
>      
> 21.  PharmaCyte Biotech. "[PharmaCyte Biotech Reaches Cooperation Agreement with Iroquois Capital; Company Appoints Five New Independent Directors to Reconstituted Board](https://pharmacyte.com/pharmacyte-biotech-reaches-cooperation-agreement-with-iroquois-capital-company-appoints-five-new-independent-directors-to-reconstituted-board/)."
>      
> 22.  ZDNet. "[How Cognizant's Digital Evolution Was Derailed by an Activist Investment Firm](https://www.zdnet.com/article/how-cognizants-digital-evolution-was-derailed-by-an-activist-investment-firm/)."
>      
> 23.  U.S. Securities and Exchange Commission. "[Elliott 13D Comment Letter](https://www.sec.gov/comments/s7-06-22/s70622-279518.pdf)," pp. 95-96.
>      
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