In her informative post The Very Active Activist Investors, Michelle Harner reviews the state of play on investor activism. As I grapple with the problem of shareholder activism for my upcoming book (Corporate Governance After the Crises), one issue I'm beginning to focus special attention on is that of whether activism by hedge funds and their ilk differs in kind from that of union and state and local government pension funds. My criticism of shareholder activism has focused mainly on the latter. In Shareholder Activism in the Obama Era, for example, I argue that:
Activist investors pursue agendas not shared by and often in conflict with those of passive investors. Activism by investors undermines the role of the board of directors as a central decision-making body, thereby making corporate governance less effective. Finally, relying on activist institutional investors will not solve the principal-agent problem inherent in corporate governance but rather will merely shift the locus of that problem.
One question I'm trying to resolve is whether hedge fund operatives like Bill Ackman (currently having some considerable success at JC Penney) are chasing private rents or are engaged in conduct that benefits all shareholders. The other question I'm trying to answer is whether these guys are micromanaging target firms in a way that is inconsistent with director primacy.
