Investor Activism: Strategies, Consequences, and Corporate Responses

This report examines the evolving landscape of investor activism, defining it as the practice where investors purchase equity to instigate significant changes within a company. It explores the shift from individual investors focused on short-term gains to institutional investors and hedge funds aiming for long-term financial and governance changes. The report highlights the potential benefits of activist investors, such as providing valuable improvement suggestions, while also acknowledging the challenges, including potential distractions and reputational risks. Using the AT&T and Elliott Management case as an example, the report suggests strategies for companies to counter activist investors, including direct communication, consensus-building, and open discussions with shareholders, concluding that these measures can serve as effective defense strategies against potential proxy fights. The report references relevant literature to support its arguments.

INVESTOR ACTIVISM AND ITS CONSEQUENCES
The evolving role of investor activism and its consequences

2INVESTOR ACTIVISM AND ITS CONSEQUENCES
Investor activism involves an individual or group of investors purchasing an equity stake in a
public company with the sole objective of carrying out a significant change within the firm
(Loop, Bromilow, & Malone, 2018). Activism can range from shareholder proposals for
changes in company policy or disclosure by company to meeting with management and
directors for discussing shareholder concerns. Extreme action taken by activists could be
aggressive proxy fights to replace the whole board of directors. The recent case of AT&T and
Elliot Management is expected to lead to a possible proxy fight.
Motives of investors activists has always been to make money (Ponomareva, 2018). In 1980s,
this space was dominated by individuals the focus was more on seeking gains through short-
term results by targeting underperforming and undervalued companies and focusing on the
flaws in financial strategies. Today, activism is dominated by big institutional investors and
hedge funds with a focus to make long-term changes by targeting both financial strategies
and governance policies.
Big institutional investors are more influential and it is easier to raise their concerns in public
domain via open letters, proxy contests, white papers, proposals etc. (Ponomareva, 2018).
Activism has also evolved with a longer-term focus, and more informed data-driven investing
and greater eagerness to arrive at a consensus with target company management.
Activist investors provide valuable suggestions about areas of improvement for a company
and its market assessment (Maria & Shutterstock, 2017). However, market assessment
provided by activists could be wrong. Dealing with activists can often be quite lengthy and
distracting for the target company management. Activist investors could hurt the reputation

3INVESTOR ACTIVISM AND ITS CONSEQUENCES
of directors and along with it, the association of those directors with other companies as
board member.
AT&T has been witnessing the various measures taken by Elliot Management to voice its
concerns about the company (Deveau, 2019). A possible proxy fight is around the corner.
Measures that AT&T can take to counter this proxy fight are:
1. Regular discussion of directors with major investors (Loop, Bromilow, & Malone, 2018)-
Open communication with these investors would help to understand their perceptions and
suggestions about the company’s growth strategies and governance policies. This move
would also keep these investors within the company’s confidence.
2. Connecting with the Elliot Management directly for better consensus (Loop, Bromilow, &
Malone, 2018)- Both the parties can arrive at a consensus so that any proxy fight is avoided.
AT&T has already been on a cost cutting spree for the last several years and the company has
also been clearing out its underperforming non-core assets gradually. The management can
openly discuss with Elliot about more constructive measures that can be taken within reason.
3. Open discussion with other shareholders (Loop, Bromilow, & Malone, 2018)- The
company can put forward its arguments regarding its current course of action and why that
course supports the interests of all the stakeholders. AT&T believes its strength to be its
highly skilled workforce and cutting down its workforce would shake the foundation for a
better future (Communications Workers of America, 2019).
With Elliot’s investment a mere 1.2% of the AT&T’s total market value, any or all these
above measures would prove to be good defense strategies against possible proxy fight.

4INVESTOR ACTIVISM AND ITS CONSEQUENCES
References
Loop, P., Bromilow, C., & Malone, L. (2018, Feb 1st). The Changing Face of Shareholder
Activism. Retrieved Sept 17th, 2019, from Harvard Law School Forum:
<https://corpgov.law.harvard.edu/2018/02/01/the-changing-face-of-shareholder-activism/>
Ponomareva, Y. (2018, Dec 10th). Shareholder Activism Is On The Rise: Caution Required.
Retrieved Sept 17th, 2019, from Forbes:
<https://www.forbes.com/sites/esade/2018/12/10/shareholder-activism-is-on-the-rise-caution-
required/#3acab1ec4844>
Maria, G. S., & Shutterstock. (2017, Jul 18th). How companies should fend off attacks from
activist investor. Retrieved Sept 17th, 2019, from The Conversation:
<http://theconversation.com/how-companies-should-fend-off-attacks-from-activist-investors-
80855>
Deveau, S. (2019, Sept 9th). Elliott’s $3.2 Billion AT&T Bet Signals ‘There Will Be a Fight’.
Retrieved Sept 17th, 2019, from Yahoo Finance: <https://finance.yahoo.com/news/t-hits-
highest-level-since-141514906.html>
Communications Workers of America. (2019, Sept 12th). AT&T Must Reject Elliott
Management’s Outdated Corporate Raider Strategy that Destroys Jobs and Long-Term
Value. Retrieved Sept 17th, 2019, from CWA: <https://cwa-union.org/news/releases/att-
must-reject-elliott-managements-outdated-corporate-raider-strategy-destroys-jobs>