The counterpart to the idea of an activist investor is an implication that other investors are ‘passive’ – content to leave strategy and performance to a company’s board and management. In a world of strong yields and reliable growth perhaps that had some truth to it. But with yields compressed and funds increasingly hoping equities will meet pension liabilities or placate the investors breathing down their necks, in 2017 no one can afford to be entirely passive.
At the same time, the political climate has become more interventionist – with renewed focus on tackling perceived executive excess and underperformance. In a world where government ministers are decrying British businesses as having grown ‘fat and lazy,’ shareholders who put companies under pressure to deliver are likely to be met with encouragement.
Boards, too, are increasingly responding to this environment by putting time and money into high quality investor relations. Rather than waiting for problems to emerge, they are actively speaking with their shareholders on a regular basis, gathering feedback to nip concerns in the bud.
In many ways, perhaps this represents the success of activist investors in converting institutional shareholders and boards to the importance of active shareholder involvement in determining strategy and assessing performance.
This success, however, raises its own challenges. These funds still have a role to play and money to deploy – but in an era of greater shareholder engagement, that job might have become a bit harder.