ID: 5005023

The Power of an Activist

After every soccer game I would write down in my notebook for every goal, a mark,

every shot on target, a mark, every pass, a mark. I had been obsessed with statistics and numbers

ever since I could count. I would make elaborate charts with every small statistic about the figure

I was studying. Whether it was in school or at home, I found a way to chart it. The obsession was

easily translated to sports as I began over analyzing teams to the point where I would become

bored with the actual game. Bringing me to look elsewhere for data, drawing me to the stock

market. I remember the first time looking at the graphs of statistics portraying the money flow of

a business, I was in heaven. This brought me to research more into the topic, to discover how

one person made millions by playing his investments right. It made me think “is it that easy to

make money?” Surely those people were grave outliers, which they were, but others were able to

shape their own outcome by controlling the market itself.

Gaining control over a company may be easier than you think. With activist investors

(activists for short) buying and selling a significant ownership stake from businesses every week,

a business is now more vulnerable to these tactics of control. The investor might be against the

company and want to hijack and drive the company in a different direction due to disagreements

over what's best for the business or to focus on non-business issues. On the flip side, they have

the ability to save other firms from failure. These investors make the stock market hectic as they

disrupt trade with their ulterior motives. Acting as rogue investors whose purpose is sometimes

unknown to the general public, they are able to manipulate a company to their will and after their
 ID: 5005023

goal is complete they hop over to a new company to manipulate. Learning about activists

sparked my new interest in stocks.. The question I began to wonder, as I spoke with my teacher

at school, Mr Nunes was, “How are activist investors steering the world's economic integrity?”

What exactly is an activist investor? Well they are ordinary people that are experts in the

stock market and finances that use their experience to trade stocks and eventually build wealth.

Some build wealth by already being apart of a company and taking their money and using it to

buy a percentage of another companies stocks after quitting their prior company. Other activists

make money by trading stocks or their other jobs and begin by buying a percent of a company.

Then typically join the board of a company to give them advice and try and steer the firm’s value

up.

How have activists steered the world’s economic integrity in the past? Well it all started

on Wall Street and “it was a very different game” where “the shareholder base of public

companies were individual investors.”(Jeff Gramm. Bloomberg Interview. Feb 23 2016)

Meaning the investors would be sole investors with no backing or company affiliation. Thus

bringing forward Wall Street and the movement of money every day from the 1930s to modern

day. The true evolution came when the investor was able to invest from their phone at anytime.

The next revolution is going to be the breaking down of trading times so investors will be able to

invest at anytime. Flash to now and you see most investors with a corporate hand on the board,

using more aggressive techniques to push their money higher. As seen with Bill Ackman, Clifton

robbins, and Scott Ferguson.

After taking some time to evaluate some investors such as Clifton Robbins, Scott

Ferguson, and Bill Ackman, I began to understand that activists often make moves in spite of

their firm only for capital gain. I then spoke to Barry Crosthwaite, who manages a publicly
 ID: 5005023

traded fund and talks directly with activists. His opinion on them was that “some are good, many

are poor and destroy long term firm value.” leading to the strong opinions of anyone involved in

the business being negative and people outside the business being positive. Adding to the

positive aspects an activist can bring to a company, Crosthwaite states an activist can “work to

increase the long term value of the firm,” by helping with the firm’s “strategy, structure, and

sometimes in the management.” One example of this is Carl Icahn who has “taken positions in

companies such as Yahoo Inc., Netflix Inc. and the Clorox Company,”(businessinsider) all

profiting and seen today as some of the wealthiest companies. As well as those notable

investments, “He bought 4.7 million shares of the company and pushed for a $150 billion share

buyback.”(businessinsider) Meaning he turned 4.7 million shares of Apple and made profit by

selling them back for the share price after it had risen. He made enormous amounts of profit

while helping the companies he was associated with. Icahn also has worked with Bill Ackman,

who was listed before as a top activist. Ackman later sued Icahn “over profits from the share

sale”(businessinsider) of Hallwood Realty. Activists may seem self-centered and narcissistic to

the core, this behavior is standard when you are you are surrounded by people who are looking

for any capital gain they can to climb the ladder further and further. When the culture becomes

one of instant returns, investor activist find it difficult to settle down to one company. The name

of the game becomes making money.

Although there are good activists as well as poor ones, stated by Crosthwaite, they “try to

implement short term actions which might increase the value of the firm in the short/medium

term, but destroy long term value,” and can be devastating for a firm. Activists can also act as
 ID: 5005023

leeches to firms, steering it to their next paycheck, then leave and join a different firm. Put best

by Sophie Hardach of World Economic Forum, Activists typically target “conglomerates that in

their eyes have become sluggish and inefficient.”(weforum) This allows them to take advantage

of their shortcomings and implement their own strategy that will increase the stock’s short term

value at the cost of long term revenue. Nelson Peltz, an activist investor, is one example of the

dark side through his hedge fund, investment in DuPont, and Trian Fund. He “purchased shares

in DuPont and demanded that it cut costs by $4 billion or else take full control of the chemical

giant without input from management.”(globalriskinsights) This allowed him to assume more

power of the firm, “laying off 5,000 people in 2016 or 10 percent of its

workforce.”(globalriskinsights) This is simply one example of activists taking advantage of

poorly managed firms by devaluing everything they have when they are done using the firm.

Activists make sure to sell their shares at the highest possible point, then jump boat to another

vulnerable company. Bruce Ledesma, a corporate lawyer, described “some famous activists who

just want to force the company to move in a different business direction, or even try to sell the

company and cash out the shareholders at a time when management doesn't want to do that.”

These activists are economic predators who destroy the reputation for all activists alike because

of their careless attitude when it comes to the human factor in a firm and their brutal techniques.

This may be one of the reasons why public companies are disappearing, with “fewer

listed companies today than in 1976; in fact, U.S. listings dropped 50 percent from 1996 to

2016.”(cnbc) giving activists fewer opportunities. With fewer public companies, activists “are

establishing themselves as major shapers of corporate strategy.”(weforum) This brings me to

another question. How can activists help the world? Well, activists have their number one
 ID: 5005023

priority set: make money, but what comes after that? Is it too much to ask for an activist to want

to help the world? With corporations like: Tesla, Proctor and Gamble, and Ikea being known for

helping humanity where do activists stand? A percentage of corporations strive to be socially

conscious, with Tesla being a frontrunner in electric cars, P&G helping poor countries obtain

clean water in Africa, and Ikea pushing the solar panel market to become cheaper. It is hard to

not want to invest in these companies for the sake of environmental conservation, but again two

worlds collide, the world of money against the world of good deeds. For many of these activists,

money is life, but the social investors see investments almost as a two sided donation for these

companies. Social investors tend to buy and sell stocks with a mainly social purpose.Thus

allowing their investments to voice their ecological statements rather than their words, drawing a

new wave of people who want to change the world with an independent mindset to motivate

them.

Motivation to help the environment is not hard to obtain since it is the very essence of

life. On the other hand, when your job is to only focus on short term gain for long term profit,

such as an activist investor, it may seem hard. Along these lines, it may seem difficult for a large

scale investment trend to take place with said investors acting solely for themselves. Again,

Bruce Ledesma added to this by mentioning that “Some complain that activists waste time and

distract management.” He continues by stating, he “found this not to be in the case when the

issues are more social or political in nature.” Still staying impartial he regarded, “for better or for

worse, those types of issues don't often drive a lot of change because the other shareholders tend

to ignore them and instead focus on the business nuts and bolts.” Thankfully, there are other

ways to we can exchange of money, welcome to the world of microloans.

 ID: 5005023

Microloans are an individual based trading system which can be used to help poor

economies with already existing capital from wealthy ones. Microloans also come with a risk to

the lender with loans not guaranteed to be refutable if the receiver does not make profit back or if

the transaction is seen as unworthy. This disincentivizes lenders from loaning money right off

the bat. Although it may seem risky, “strategic microlenders often attempt to break repayment

installments into pieces that are small enough that customers can, if needed, repay loans from

household funds other than profits from the given investment project.”(Aghion and Morduch

142) giving a great safety net for those considering lending money and “the bank’s risks are

considerably reduced as a result.”(Aghion and Morduch 142) Subsequently this makes people

more willing to invest seeing as though there can be little to no risk if you are smart about it.

I for one think microloans are a great way for wealthy countries, to help disenfranchised

countries through small loans to businesses struggling. This opens up new possibilities for people

in poor countries to open a free market system similar to the United States. Microloans are

already shaping the world, with companies such as The Small Business Administration and how

they have “provided 5,459 microloans totaling $76.8 million”(Small Business Administration

Microloan Program by. Congressional Research Service) from 1997 to now. Therefore bringing

more foundation to the microloan community of corporations, to further strengthen the ‘good’

microloans. Seeing as though microloans are used primarily to better the lives of those suffering

from financial peril, it seems to be a stark contrast to the mixed reviews of activist investors.

These microloan businesses not only help by investing in environmentally friendly firms, but

also by giving loans to small business in poverty ridden countries.

Will this really help build the economy in the country, or is it just another way

companies can make money from poor countries? China has recently loaned $60 billion to Africa
 ID: 5005023

and “The package outlined by Xi [, the president of China,] also includes medical aid,

environmental protection, agricultural training and assistance, and government scholarships and

vocational training for more than 100,000 young Africans.”(washingtonpost) Thus giving a

promising outlook to microloans, especially on a national scale. From the surface, it seems as

though China’s intentions are pure. However China is known for setting “debt traps” as seen in

Sri Lanka, which “had no choice but to grant China a 99-year lease for a Belt and Road Initiative

port...”(washingtonpost) giving China full ownership to a main access point for trade and

commerce in Sri Lanka. This “debt trap” allowed China to build industrial complexes in other

poor nations and gain full control over them because of their debt system.

The debt system is similar to how activist shareholders can hijack a firm into making him

money for the short term and then leaving before it goes down. However there are activists

looking to help the firms while making money as told before, complicating my opinion. Further

bring me to my exuberant questioning of these activists and how they should or should not act.

They are simply doing their job as intended, to make money for themselves and the firm that

they own a portion. Their acts of aggression or positive collaborations, all taking place in the

Board of the company. The activist’s outcome push the market one way or another. With the

sudden rise of activists in the economy across the world, shaping many mixed opinions on them.

Corporations for one have to be more careful of how they market their product and activists have

already added a new layer to firms decision making.

Looking back at the power of an activist and deciding whether they steers the world's

economic integrity for the better or worse. First, there are many examples of activists taking

advantage of companies. But on the other hand, companies are known for taking advantage of

consumers, so it is logical to have a investor to keep the company in check since the investor is
 ID: 5005023

the closest part of the company to the consumer. The activist pushes firms every which way, with

their common goal upward, then the activist has to make a profit by helping the firm thrive as

well. This is both good for the consumer, activist and corporation. I would say that activists are

more helpful than harmful for the economy and are able to steer the economy because of how

many and how powerful they are. I ultimately think that for every activist pushing a company

that is socially conscious is a push in a positive direction for the economy and the relationship

between companies and the environment.

Work Cited

“Activist Investor.” Investing Answers Building and Protecting Your Wealth through

Education Publisher of The Next Banks That Could Fail, investinganswers.com/financial-

dictionary/investing/activist-investor-5929.

“Activist Investors: Do They Do More Harm than Good | GRI.” Global Risk Insights, Global

Risk Insights, 8 Aug. 2017, globalriskinsights.com/2017/08/activist-investors-harm-good/.

Armendariz, Beatriz, and Jonathan Morduch. The Economics of Microfinance. PHI Learning

Press, 2011.

Bloomberg. “The History and Evolution of Shareholder Activism.” YouTube, YouTube, 24

Feb. 2016, www.youtube.com/watch?v=T_DsIgHesqg&t=54s.

 ID: 5005023

Breitinger, Dominik, et al. “Activist Investors Are More Powerful than Ever. Here's What

That Means for the Economy.” World Economic Forum,

www.weforum.org/agenda/2018/09/activist-investors-more-powerful-than-ever-wider-

economy/.

Butt, Rachel. “Here Are the 10 Biggest Activist Money Managers and Some of Their Most

Impressive Bets.” Business Insider, Business Insider, 17 June 2016,

www.businessinsider.com/top-10-biggest-activist-investors-2016-6.

Editor. “10 Global Companies That Are Environmentally Friendly.” Virgin, 27 Apr. 2017,

www.virgin.com/virgin-unite/10-global-companies-are-environmentally-friendly.

Fifield, Anna. “China Pledges $60 Billion in Aid and Loans to Africa, No 'Political

Conditions Attached'.” The Washington Post, WP Company, 3 Sept. 2018,

www.washingtonpost.com/world/china-pledges-60-billion-in-aid-and-loans-to-africa-no-

strings-attached/2018/09/03/a446af2a-af88-11e8-a810-

4d6b627c3d5d_story.html?noredirect=on&utm_term=.d4c80f056817.

Hayes, Adam. “What Is Microlending And How Does It Work?” Investopedia, Investopedia,

6 Mar. 2019, www.investopedia.com/articles/personal-finance/040715/what-

microlending-and-how-does-it-work.asp.

Kenton, Will. “Activist Investor.” Investopedia, Investopedia, 6 Mar. 2019,

www.investopedia.com/terms/a/activist-investor.asp.
 ID: 5005023

Lindberg, Kari, et al. “From Asia to Africa, China's ‘Debt-Trap Diplomacy’ Was under Siege

in 2018.” Quartz, Quartz, 28 Dec. 2018, qz.com/1497584/how-chinas-debt-trap-

diplomacy-came-under-siege-in-2018/.

Lorsch, Bill GeorgeJay W., et al. “How to Outsmart Activist Investors.” Harvard Business

Review, 5 Nov. 2014, hbr.org/2014/05/how-to-outsmart-activist-investors.

“Microloan Program.” GovLoans.gov - Find the Right Loan for You,

www.govloans.gov/loans/loan-details/1501.

Pimentel, Benjamin. “Microloans: 13 Top U.S. Nonprofit Lenders.” NerdWallet, NerdWallet,

28 Nov. 2017, www.nerdwallet.com/blog/small-business/top-nonprofit-microfinance-

organizations-that-lend-in-us/.

“Pump and Dump Schemes.” Investor.gov, www.investor.gov/protect-your-

investments/fraud/types-fraud/pump-dump-schemes.

Rasmussen, Caroline. “Where Have All the Public Companies Gone?” CNBC, CNBC, 25

Oct. 2017, www.cnbc.com/2017/10/25/where-have-all-the-public-companies-gone.html.

Small Business Administration Microloan Program. Library of Congress, Congressional

Research Service, 2015.