74. Activist Investor (definition)

NOTE: if you’re new to Ground-Up Governance, or are finding anything a bit strange or confusing, you might want to START HERE.

Starting back a million years ago when we first defined shareholder, a lot of Ground-Up Governance definitions have helped to show off the authority that shareholders have and the various ways they can use it. We’ve also talked a few times about how different shareholders want different things at different times. Well, sometimes you might find out that you have a shareholder that *really* wants something, they want it *as soon as possible*, they have enough shares and votes to get what they want, and they’re willing to be a bit dramatic about it if they have to. A shareholder fitting that description is also known as an “activist investor.”

Activist investors can make the lives of boards and executives really complicated. Since they have a lot of votes, it means they have influence over board composition and also a pretty loud voice in deciding what the corporation will do in the future. And the most effective activist investors will do whatever they can to get their way no matter how disruptive or difficult it might be for the corporation.

This might all sound really annoying…and it can be. The thing is, investors mostly only act like activists because a few things have happened. Here’s an example that’s illustrative of what might happen in real life.

1. Reallie Steilish, despite still being the world’s leading Billie Eilish-themed streetwear company, just isn’t performing very well, and shareholders aren’t very happy.

2. FunkyHatLove Investments (an activist investor) has noticed that you, as CEO, have been slow to take advantage of the opportunity to integrate generative AI into Reallie Steilish headwear and create a new line of Reallie StAIlish smarthats

3. FunkyHatLove Investments has met with you several times to show you data (and some cool mockups) to try to convince you to come to your senses.

4. Despite their best efforts, FunkyHatLove Investments has been unsuccessful at changing your mind.

5. FunkyHatLove Investments accumulates enough shares – and also builds an alliance with other institutional investors, including the Eyelash Pension Plan Board and Billie Eilish University Investment Fund – so they can get a couple of new AI-savvy directors elected to the Reallie Steilish board.

6. The new directors have convinced your board that Reallie StAIlish is way of the future, so you can either choose to change your mind or likely get fired from your own company.

As painful as that experience might be for you, the activist investor just might have saved Reallie Steilish from exctinction.