If you are going to look at the press releases of activist shareholders run by big funds or hedge funds, you would come across a familiar line. This line is so common, among these types of financial trading outfits, that you would think that they are working off the same script. The party line among activist shareholders is that they do what they do because they just want to maximize shareholder value. The thinking is: if somebody buys into a company, that person is entitled to get the most profits for those shares as possible. This all sounds great on paper. However, the whole idea of shareholder activism has been picking up so much lately that it might be causing unnecessary turbulence as far as corporate governance is concerned.
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Keep in mind that running a corporation involves walking a tightrope. On one hand, you need to serve your customers so you can stay in business. On the other hand, you need to maximize shareholder value. Finally, you need to balance all these with the institutional needs of the company as well. After all, great companies are built on the labor of great employees. They all go hand in hand. When activist shareholders enter the picture and tell the CEO and the Board of Directors that the company should spin off certain assets, or even sell itself to a competitor, this might not necessarily be in line with all those other competing values and competing interests. Not surprisingly, other shareholders look at activist shareholders as vultures or short-term speculators.
There is a lot of truth to that. If you compare the interests of shareholders who are looking to grow the company over the long term, their interests are usually opposed to those who are looking for a quick sale or a quick turnaround. It is all about timing. If you are to look at the bottom line interests of both types of shareholders, they have a lot in common. However, it is all about how you time the deals. This is where the problem lies.