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Activist Investors Are The New Business School Heroes

People love rebels. Even business professionals, who traditionally prefer slow and steady, have feted defiant spirits like Steve Jobs and Richard Branson. For younger entrepreneurs, who came of age in the era of disruption, rebels provide a roadmap for taking down goliaths and establishing new orders.

So it shouldn’t be surprising that a new form of business rebel has emerged: activist shareholders.

Forget the Warren Buffets, with their philosophy of choosing steady stocks and holding onto them long-term. This new breed of investor is accumulating greater shares in firms, using their clout to steer company decision-making. For some, the goal is to leverage executives to shed unprofitable divisions or better allocate resources. However, others focus on maximizing shareholder value in the short-term, regardless of its impact on operations. For them, accumulating and coalescing power, which can culminate with seats on the board, is their means for setting a firm’s agenda.

For high-ranking executives and board members, activist shareholders like JANA Partners or Pershing Square Capital Management are disruptive forces – the modern equivalent of a shakedown artist (or the Cosa Nostra). For smaller investors, activists have become a necessary means to get management’s attention (and raise stock prices in the process).

And their influence is being felt increasingly at business schools, where their swashbuckling candor and drive for results would be naturally attractive to students. That’s particularly true of Millennials, who aren’t afraid to “rock the boat,” so to speak.

Of course, idealism is only a small part of their appeal. In reality, activism is a lucrative business – and activist firms are hiring. In a new Wall Street Journal article on the impact of activist shareholders on business school curricula, Lindsey Gellman and Liz Hoffman cite research from research firm HRF showing that the number of “activist” firms has grown from to 72 from 52 since 2007 – and their “dollars under management” have skyrocketed to $127.5 billion. What’s more, according to financial researchers FactSet, activist campaigns have grown by 63% since 2009.

And that has created a ripple effect. A decade ago, The Wall Street Journal reports, the faculty view of activist shareholders was ambivalent to dim. Back then, many considered them to be corporate raiders who could drain tens of millions of dollars through wasteful infighting. “The overwhelming sentiment in the room was that activist investors were harassing the company and they’re just in it to make a short-term buck,” says Robin Greenwood, a Harvard Business School professor who taught a case study on how Carl Icahn squeezed painful concessions from energy giant Kerr-McGee in 2005. Fast-forward 10 years and “a larger portion of students come in with the perspective of the activist,” Greenwood says.

Lance Cannon, a 2015 graduate of the UCLA Anderson School of Management, tells The Wall Street Journal, “There’s definitely excitement around these guys and what they do.” And schools have responded by hosting more activist speakers and integrating more content and case studies related to activist shareholders.  And it isn’t just future investors studying the activist segment. Management students are also paying closer attention, knowing they may someday encounter activists when they move into the C-suite.

While the image of activist shareholders has been rehabilitated to a degree, you’ll still find plenty of critics in the faculty lounge. Lynn Stout, who teaches corporate and business law at Cornell Law School, tells The Wall Street Journal that such investors focus too heavily on short-term profits. “There’s plenty of evidence to support the view that activism does far more harm than good,” she asserts.

In the end, it pays for business students to learn about this facet of business, says Christopher Crawford, a Columbia Business School student. “Activism has changed so much about business. Whether you think it’s constructive or not”—and he’s quick to say there are good activists and bad ones—“it’s not going away.”

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Source: Wall Street Journal