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This article is written by Ashish Narang, a student at Jindal Global Law School. Through this paper, the author tries to analyse what shareholder activism is and how it is a crucial element in ensuring businesses uphold their responsibilities towards society, environment and other forms of stakeholders.

Historically recognized by terms such as “corporate raiders” or “asset strippers” are now gaining mainstream recognition and growing in popularity. Investor activism is a strategy where an investor or even social organizations at times purchase an equity stake in a company and then fight internally to bring changes in practices of the management to preserve the value of the company, at the same time fuelling Corporate Social Responsibility by forcing the management to form more responsible business practices. Investors can initiate such change not only internally but externally as well via traditional and social media, investor campaigns and other similar means.

According to S&P Capital IQ assets under management of activist hedge funds in the US have grown from around US$47bn in 2010 to US$125bn in 2015, which represents a compound annual growth rate of 22 percent. This is a significant amount of both capital value and potentially disruptive activist activity.There has also been growing support for such investors from traditional investors and proxy advisors, many hedge funds are now engaging in direct shareholder activism as well. Statistics show that a significant portion of demands by such investors are usually met. While there has been growth in the number of such investors, it is still not nearly sufficient added with the fact that these investors are very unevenly spread out globally, a bulk of such investors have their activity based in the west. Unfortunately, Shareholder activism is yet to gain momentum in the east which is dangerous considering the fact that the fastest-growing economies are located in this hemisphere. China and India have been fighting for the tag of the fastest growing economy, for the next ten years the top ten fastest-growing cities are all going to be from India, South Korea, Japan, Honk Kong among others are other important centres for business in this hemisphere.
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A Stanford study by Sarah A Soule shareholder activism can catalyse progress, fuel CSR and preserve the firm’s value. Soule and her collaborators analysed the behaviour of a randomly selected sample of 300 firms that were included in the Fortune 500 at some point between 1993 and 2009. Their data look specifically at two types of activism: boycotts directed at firms and proxy proposals. The results of the study suggest that such shifts in investor behaviour ‘crack open’ the door to change. It provides a platform or investors to raise their concerns internally and persuade practices of the board to be more socially responsible.

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Investors such as Danial Loeb, Nelson Peltz among others are garnering media attention for their role in shareholder activism. On October 1st of this year, General Electric (GE) fired its CEO, John Flannery, after a 14-month appointment. Peltz was responsible for the firing of Flannery, his partner at the Trian hedge Fund, Edward Garden owns 71 million equity shares of GE and is on the board of directors and it was Garden who initiated the process of getting Flannery fired. Under Flannery GE was under the radar of the US government for malpractices and GE indulged in some unethical practices at the time. Peltz lost a billion dollars doing so but defended it by stating such change was crucial to preserve GE and re-route it to a brighter future. Later Waltz disclosed a 3.5-billion-dollar stake in the behemoth Proctor and Gamble (P&G).  By what was termed as the ‘most expensive proxy vote in the history of the US’ Peltz was successful in getting P&G to announce a watered-down version of the re-organisation plan he had been pushing for. Peltz also instigated the transformation of Dupont into 3 independent companies after first combining with Dow Chemical. He forced the separation of Kraft into Kraft Foods Group Mondelez International. He tried and failed to break up Pepsico. Similarly, Danial Loeb’s hedge fund revealed a 1.25% Nestle for 3-billion-dollars, Loeb was successful in making the company sell struggling segments of its businesses and a 23% stake in the cosmetics giant L’Oreal to make Nestle focus on core components of its business. Unfortunately, these supposedly disruptive changes aimed at fortune 500 companies by investors like Loeb and Peltz are ultimately aimed at lining up the pockets of investors in these companies and such campaigns have only focused on more ethical practices by their individual firms from an investor perspective to do right by them, these campaigns have failed to acknowledge the social and environmental aspects of their business on society collectively. Ideally, shareholder activism should endeavour to pave the path to corporate governance which should, in turn, create corporate consciousness and an environment in which those who are charged with governance and those who are governed display genuine ethical, social and ecological responsibilities

Not too long back in 2017, Nestle faced criticism from the international community over collecting water from drought-stricken Southern California. Of the company’s  40 water sources around the country, 11 are in California, which is dealing with long-term drought. While the company takes about 30 million gallons each year, it pays only $524 to the U.S. Forest Service for the permit. This permit had expired in 1984 and yet a court order permitted the company to continue drawing water from these water bodies at a menial amount of 524 dollars a year. Despite all the backlash the company faced, it’s water bottling business still grew at 9% that year. Nestle was able to continue with such unethical practices by spending big in the US congress towards lobbying. It spent a whopping $4.8 million in 2013, $2.02 million in 2014, $3.13 million in 2015 towards lobbying. Nestle was able to get out of all this backlash because of its indifferent behaviour and a ‘too big to fail’ attitude. A common practice amongst a lot of businesses is to engage in unethical, illegal or borderline illegal business activities and a generate a large sum of cash-flow, a small percentage of this cash-flow generated is paid towards fines, lobbying and legal expenditures incurred, by doing so in essence what these businesses are doing is treating these fines and legal expenses as a ‘cost of doing business’ and generating large profits without any regard to the catastrophic social and environmental impact these activities cause. These practices are especially prevalent in the pharmaceutical business.

A classic example would be the manufacturer of the popular opioid Oxycotin, Purdue Pharma. In Governor Baker’s words “Purdue Pharma is responsible for much of the opioid crisis in the US”. Such Opioids were liberally prescribed throughout the country by medical practitioners motivated by their aggressive marketing practices towards doctors. For many years Purdue Pharma continued paying fines, continuing to manufacture oxycontin and generate large sums of money. For example, in 2007 they paid 634 million dollars in fines for misleading marketing. They ended up being one of the most significant contributors to the US opioid crisis, they also with-held information about just how dangerous it’s drug was and continued pushing doctors to prescribe oxycontin aggressively. It has allowed the Sackler family to become billionaires. Johnson and Johnson was another giant who settled the opioid lawsuits for 20.4 million dollars. In 2017, McKesson, the pharmaceutical giant paid a fine of 150 million dollars, which seems like a lot of money until one realises the fact that 150 million dollars were less than 1/1000th of their revenue for that year, not to mention the fact that it cost the state much more money in health expenditure. Shareholder activism could have refrained businesses from engaging in such practices which have catastrophic consequences.

Another practice that has been gaining popularity in the west, particularly in the US is the practice of ‘astroturfing’ or creating fake grassroots. Astroturfing is the attempt to create an impression of widespread grassroots support for a policy, individual, or product, where little such support exists. Multiple online identities and fake pressure groups are used to mislead the public into believing that the position of the astroturfer is the commonly held view.  An advertisement in the US carried out by the “Americans against food taxes”, depicts a middle-class woman holding a grocery bag containing aerated beverages saying the increase on beverage taxes may only seem like pennies to the Congress but what does not seem like a lot to the government, can be a lot to the average American. The advertisement ends with these exact words “Tell Congress no taxes on juice drinks and soda”. On the face of this advertisement, it may appear that aggrieved consumers took out an advertisement collectively raising concern over a new proposed tax raise on aerated beverages and sugary drinks, when in fact it was a front group for the food and beverage industry.

Some of these practices can mask themselves extremely well making it almost impossible for the average consumer to identify such corporate practices. In another instance, the group “save our tips” which speaks for wait staff is an anti-minimum wage increase group funded entirely by restaurant owners. The “American council on science and health” is funded by amongst others soda companies, E-cigarette companies and chemical manufacturers. In another instance, there was an advertisement aired on television against The Humane Society asking people to stop funding the society citing reasons like” it is not even affiliated to your local vet”. Who would want to take out an advertisement condemning an NGO working for animal welfare? turns out that the Humane Society had been for a long time criticising the pork industry for its cruel practices on pigs and the advertisement was sponsored by the pork industry in retaliation. It is extremely disheartening that in none of the above cases did investors step in and stop managements from swaying public opinion by such unethical practices because of their drive for financial gain.

In the Indian context, the Vedic philosophy of “Sarva Loka Hitam” i.e. ‘‘the well-being of all stakeholders”, has regained importance in the current business environment. The concept has evolved over the years and now used as a strategy and a business opportunity to earn stakeholder goodwill. First, it helps set out the areas that companies should focus on environmental, social, and economic performance. Secondly, it provides a common societal goal for corporations, governments, and civil society to work towards ecological, social, and economic sustainability. However, sustainable development by itself does not provide the necessary arguments for why companies should care about these issues. Those arguments come from corporate social responsibility and stakeholder theory.

United Nations Conference on Environment and Development (UNCED) held in Rio de Janeiro in 1992- Four Fundamental Principles of Sustainable Development agreed by the world community are:

  1. Principle of Intergenerational equity: need to preserve natural resources for future generations.
  2. Principle of sustainable use: use of natural resources in a prudent manner without or with minimum tolerable impact on nature.
  3. Principle of equitable use or intergenerational equity: Use of natural resources by any state/country must take into account its impact on other states.
  4. Principle of integration: Environmental aspects and impacts of socio-economic activities should be integrated so that prudent use of natural resources is ensured.

In the corporate social responsibility and stakeholder theory, Investors are the most obvious participants who can afford to bring effective changes and help businesses create and realise such socially responsible practices. 

Another crucial problem is that the law has failed to keep up with times, prevalent laws are outdated in a lot of countries and workarounds or loopholes are easily found and exploited by corporates. We live in an era of free-flowing information and we thrive on complexity, businesses have become smarter and they employ complex strategies to avoid their social and legal responsibilities. The law has failed to address these concerns. For example, in the case of Nike, H&M and many other textile companies, it is common practice to outsource their manufacturing to manufacturers in countries like Indonesia where Labourers are overworked, child labour is prevalent and the wages are abysmally low. The labour laws are lax compared to their home countries. Here, Nike, H&M is not doing anything illegal and yet it is obvious that such practice is inhumane and purely exploitative in nature unless there is consumer and investor activism why will these companies stop such practices, in the case of Nike it faced major backlash from consumers and it’s brand came to be associated the ‘sweatshops’ image which hurt its business, since then Nike has taken significant initiatives and tried to remain the industry leader in terms of social and environmental responsibility.


In all the instances mentioned above in this paper, every action or in-action of investors was driven by a motive of financial gain, so why should investors actively engage in shareholder activism and fight for more socially responsible and ethical practices, especially given that in a lot of times such action or inaction is within the realm of the law and they are not committing any crime? Corporate sustainability indicates new philosophy, as an alternative to the traditional growth and profit maximization model, under which sustainable development comprising of environmental protection, social justice and equity, and economic development are given more significant focus while recognizing simultaneous growth of the corporate and profitability. The profit maximization model may make businesses money in the short-term, however, in the long term, such businesses are bound to face backlash from different stakeholders which can potentially bankrupt these businesses, the only way to grow a sustainable business and preserve an enterprise’s value in the long-term is by engaging in Socially and environmentally sound policies even if it means your profit percentage falling in the short run. Shareholder activism is the best way to ensure that businesses follow such practices so that investors continue to make money even in the long run. 


  1. Cronin, Garren, and Fiona McLain. 2019. “Shareholder Activism: A Disruptive Investment Strategy Growing In Popularity – KPMG Newsroom”. KPMG Newsroom.
  2. “Sarah Soule: How Activism Can Fuel Corporate Social Responsibility”. 2019. Stanford Graduate School Of Business.
  3. “Nelson Peltz: The Investor That Tripped On GE & P&G”. 2019. Fortune.
  4. “How Activist Investor Daniel Loeb Forced A Shake-Up At Nestlé”. 2019. Business live.
  5. “Nestlé Faces Backlash Over Collecting Water From Drought-Stricken Southern California”. 2019. Losangeles.Cbslocal.Com.
  6. “Nestlé Spends Big In US Congress To Influence Issues That Could Affect Its Bottom Line – Carib Flame”. 2019. Caribflame.Com.
  7. “In Letter, Gov. Baker Says Purdue Pharma ‘Responsible For Much Of The Opioid Crisis’ – The Boston Globe”. 2019. Bostonglobe.Com.
  8. Randazzo, Sara. 2019. “Johnson & Johnson Agrees To Settle Ohio Opioid Lawsuits For $20.4 Million”. WSJ.
  9. Bienkov, Adam. 2019. “Astroturfing: What Is It And Why Does It Matter? | Adam Bienkov”. The Guardian.

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