The term “activist investor” might conjure up images of an altruistic billionaire using her financial clout to push companies towards greener technologies or improving conditions for workers, but the term is much broader and refers to investors attempting to influence the general strategy of a company by asserting influence over the election of board members. And it’s becoming more common.
According to Ryan Derousseau in an article for Fortune published in fall, 2017, “Activist investing—where a major shareholder or group of shareholders uses its leverage to pressure management to change strategy—has become more commonplace of late.” In fact, Derousseau tells us, since 2012, this practice has increased by 18 percent according to FactSet, a research firm. Who’s behind the efforts? Activities like Nelson Peltz, Carl Icahn and Bill Ackman, heavy hitters who are increasingly likely to target large companies with big brand names.
At the same time, activist investors have recently demonstrated their ability to push social change, whether by virtue of their personal interests or out of a genuine desire for the underlying change. As Jeff Green writes for Bloomberg, 2017 was a landmark example of just such a change. “Of 397 independent [S&P 500] director slots open in the 2017 proxy season, 36 percent went to women and 20 percent to minorities, according to Spencer Stuart, which has tallied boardroom demographics for 30 years,” writes Green. “Combined, women and minorities made up 50.1 percent of the new board members, compared with 42 percent last year, the data showed.”
Green notes that investment groups like BlackRock Inc. and State Street Global Advisors pushed boards to add more women and minority candidates “by voting against hundreds of directors at companies perceived as not taking sufficient steps to improve diversity.” Green also argues that the recent spike in claims of sexual harassment scandals in the business world – among other cultural spheres – have led to increased calls for greater representation of women on corporate boards.
Still, progress could be faster. Green points out that fewer than one seat on each S&P 500 board, on average, changed hands last year. With little existing diversity on boards, the slow turnover means that any increase in the overall representation of minorities has been slow as well.
The recent example of the growth in minority representation among new S&P 500 board members is another example of how businesses – in this case, the financial owners of those businesses – see diversity and inclusion as a worthwhile goal. Business leaders, increasingly, are beginning to understand that inclusion benefits the bottom line.
As we like to say: inclusive is a business imperative! It’s hard to say whether their actions are driven by the idea that diversity and inclusion are desirable in their own right, or whether it’s because they see the benefit to the bottom line. Either way, it’s a step in the right direction, and one we applaud.