What is shareholder activism?

Key takeaway - Shareholder activists buy stakes in public companies and push for changes they believe will increase shareholder value. Those changes can include board appointments, management changes, share buybacks, asset sales, spin-offs, or even a sale of the entire company.

Shareholder activism is an investment strategy in which investors use their ownership stakes in publicly listed companies to influence corporate decision making.

Unlike passive shareholders, such as index funds that primarily track market performance, activist investors take an active role in their investments, seeking to drive changes they believe will increase a company’s value.

These changes can range from relatively straightforward financial actions, such as share buybacks or dividend increases, to more structural interventions, including board changes, executive replacements, asset sales, or even full-scale breakups of a company.

The goal is typically to increase shareholder value by addressing what activists see as a gap between a company’s market valuation and its underlying intrinsic worth.

A useful example is Elliott Investment Management’s campaign at Southwest Airlines in 2024. Elliott argued that the airline had underperformed peers and failed to adapt to changing market conditions.

Over the following months, Elliott built support among shareholders, pushed for board and leadership changes, and ultimately negotiated a settlement with the company.

Who are activist investors?

Activist investors come in many forms, but the strategy is most commonly associated with hedge funds that specialize in corporate engagement.

Firms such as Elliott Investment Management, Starboard Value, Pershing Square, and ValueAct have built reputations by acquiring stakes in publicly traded companies and advocating for strategic, operational, or governance changes.

While hedge funds dominate the headlines, activism is not limited to them.

Pension funds, mutual funds, family offices, and even individual investors may pursue activist campaigns when they believe changes are needed to improve shareholder value.

How activist investing works

Activist investors typically build a significant position in a target company before publicly disclosing their stake through regulatory filings.

In the United States, activist campaigns often become publicly visible when an investor crosses a regulatory ownership threshold. Once an investor acquires more than 5% of a company’s shares, they are generally required to file a Schedule 13D disclosure with the Securities and Exchange Commission (SEC). This filing must outline the size of the stake and whether the investor intends to influence management.

These disclosures are closely watched by markets and often act as the first public signal that an activist campaign may be forming, frequently triggering share price movement.

For example, Elliott disclosed an 11% economic interest in Southwest Airlines in June 2024 worth $1.9 billion, including common stock and derivatives, through regulatory filings before publicly outlining its concerns with the company's strategy and performance. Although far short of a controlling interest, the position was large enough to make Elliott one of Southwest's biggest shareholders and gave it a platform from which to advocate for change.

Importantly, activist investors rarely own a controlling stake. Instead, they seek to persuade other shareholders that their proposals will create value, allowing them to exert influence with relatively small ownership positions.

Once a stake is disclosed, the activist may pursue change through private discussions with the company’s board of directors and management or through public campaigns aimed at other shareholders.

While activists often begin with private discussions, Elliott's campaign at Southwest became increasingly public as the firm released open letters and presentations seeking support from other shareholders.

The approach can vary significantly depending on the situation. Some campaigns are collaborative, with investors working behind the scenes to influence strategy. Others are more adversarial, involving public pressure and contested votes at shareholder meetings.

Common activist tactics

Activists use a range of tools to influence outcomes.

Common tactics include applying public pressure to the company through open letters to the board of directors, presentation decks outlining the activist’s investment thesis, media campaigns targeting management decisions, and campaigns to elect new directors at annual meetings.

Private engagement is also common, wherein the activist negotiates directly with boards and senior executives.

In more contested situations, activists may file shareholder proposals or launch proxy contests to elect directors to the board, asking shareholders to vote for their proposed board candidates instead of the company’s nominees.

Legal challenges or regulatory engagements are less common and more severe in nature; however, they still appear infrequently.

Elliott employed several of these methods during its Southwest campaign, including public presentations, media engagement, boardroom pressure and negotiations that ultimately resulted in governance changes.

Why activists get involved

It’s important to remember that activists don’t make money because they win fights. They make money because, ideally, the changes they advocate cause the stock to become more valuable, raising the value of their investment.

Activists generally target companies they believe are undervalued, poorly managed, or underperforming.

Their core argument is usually that the market is not fully recognizing the company’s potential due to issues such as inefficient capital allocation, weak governance, underperforming business units, or a lack of strategic clarity.

For example, an activist might argue that a company is holding excess cash that should be returned to shareholders, that a non-core division should be sold, or that management has failed to execute effectively on the company's strategy.

Common proposals include returning excess cash to shareholders, divesting non-core assets, restructuring operations, or replacing senior management.

Elliott argued that Southwest's operational challenges and strategic missteps had contributed to underperformance, creating an opportunity to unlock shareholder value through change.

What activists try to change

While every campaign is different, activist demands tend to fall into a few recurring categories.

• Capital allocation: Increasing dividends, share buybacks, or reducing unnecessary capital spending.

• Strategic changes: Selling assets, spinning off divisions, or refocusing on core operations.

• Governance reforms: Changing board composition, improving oversight, or altering executive compensation.

• Management changes: Replacing CEOs or other senior executives when performance is viewed as inadequate.

The Southwest campaign touched several of these areas. Elliott advocated for leadership changes, board refreshment and operational improvements, arguing that stronger execution would improve shareholder returns.

How activist campaigns end

Not all activist campaigns result in proxy fights or boardroom battles.

In many cases, companies reach negotiated settlements with activists, agreeing to appoint directors, review strategic alternatives, modify capital allocation policies, or make governance changes without a shareholder vote.

Other campaigns culminate in mergers, asset sales, spin-offs, or leadership changes.

In some instances, however, activists fail to gain support from other shareholders and exit their investments without achieving their objectives.

Elliott’s campaign ultimately concluded with a negotiated settlement rather than a full proxy fight. Southwest agreed to governance changes and board appointments, demonstrating how many activist situations are resolved through compromise rather than shareholder votes.

Do activist campaigns actually create value?

The impact of shareholder activism is debated, and the outcomes of activist campaigns are mixed.

Supporters of shareholder activism argue that activists improve corporate efficiency, unlock hidden value, and hold management teams accountable. Critics, however, claim that activism can encourage short-term thinking or disrupt long-term strategy.

Many campaigns result in short-term share price gains, particularly following the announcement of a new activist stake. However, long-term results vary depending on the quality of execution and the nature of the changes implemented.

Some campaigns lead to sustained improvements in performance and valuation, while others fail to achieve their objectives or produce only temporary changes.

Research suggests that profitability depends heavily on the type of change being pursued. Some studies have found that campaigns focused on capital allocation, such as dividends and share buybacks, tend to generate stronger long-term returns than those centered on management turnover or governance reforms alone.

Why shareholder activism matters

Shareholder activism plays an increasingly important role in modern global capital markets by influencing how publicly listed companies allocate capital and structure their business.

With trillions of dollars invested across equities, even small changes in corporate behavior can have significant implications for shareholders, employees, and broader market dynamics.

As a result, activist investors have become a persistent feature of the investment landscape, particularly in sectors where companies face structural change, operational underperformance, or shifts in consumer demand.

Key takeaways

Shareholder activism is ultimately about influence.

It sits between passive investing and outright control, giving investors a mechanism to shape corporate strategy without owning a company outright.

Whether viewed as a force for discipline or disruption, activism remains one of the most powerful tools in global equity markets.

Understanding how activist investors operate is increasingly important for shareholders, as activist campaigns now influence hundreds of public companies worldwide each year.

Our next article in this Shareholder Activism series explores how activists actually make money with their investments, and how the different demands they make influence their profitability.