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Should shareholders be worried about activist investor involvement?

Elon Musk’s new stake in Twitter [TWTR] and subsequent addition to the company’s board of directors has got us thinking about activist investors and the role they play in the wider market.

Ironically, when Musk disclosed his ownership stake in the social media company, he filed a 13G form, which is only for passive investors who have no intention of influencing the business in question. This is in spite of his quests for free speech and an edit button in the meantime.

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Alas, this is not another rant about the Tesla [TSLA] CEO and the perennial headache he provides to the SEC — we’ve had enough of that from me in recent weeks. Instead, let’s look at some of the recent impact activist investors have had on the market.

But first, what does activism actually entail?

The term activist investor can refer to any shareholder that looks to influence the leadership and decision making of a company. They will identify underperforming businesses, take up a significant stake and then bring in changes to increase shareholder value. These changes usually come in the form of a new CEO, appointing new board members, reductions in staffing and expenditure or spinning off unprofitable arms of the company.

Unsurprisingly, this has led to the practice being vilified by many. The perception of an activist investor is a slimy suit with a slick-back haircut, starched collar and gleaming cufflinks who comes in to gut the company and make a quick buck.

Basically, Michael Douglas.

While the 1980s-movie caricature may still be relevant for a select few — Carl Icahn comes to mind — the role of an activist investor is more nuanced than perhaps we give it credit for.

Yes, there are sure to be injured parties when an activist comes calling, but on the whole, could they be a good thing for shareholders?


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