Shareholder activism

Activism by hedge fund and other investors to improve governance and performance of companies has become a significant phenomenon in recent years. In this paper, we examine a number of career consequences for directors when firms are subject to activist shareholder interventions.

Examining 1,868 activism events - all publicly-disclosed shareholder activism from 2004 to 2012 conducted by hedge funds or other major shareholders - we find that directors exit the board at a higher rate when their firms are targeted by activists. Even directors not specifically targeted by dissident shareholders are also likely to leave the board, as are directors at firms targeted by activism with no board-related demands, let alone a formal proxy fight.

Overall, whether departure is voluntary, optimal or otherwise, the evidence suggests that activism is associated with career consequences for directors. While it has been argued that proxy contests are an ineffective mechanism for replacing directors, as they rarely succeed in getting a majority of shareholder support, our results suggest that director turnover takes place following shareholder activism even without shareholder activists engaging in, let alone winning, proxy contests...

We find that director election results matter for director retention: directors are more likely to leave in the year following activism when they receive lower shareholder support.

(From "Consequences to Directors of Shareholder Activism")