Jonathan Cohn, an associate professor of finance at Texas McCombs, has discovered a bullish trend in shareholder activism. This trend includes past executives becoming more aggressively engaged in shaping corporate behavior. Alongside researchers Mitch Towner and Aazam Virani, Cohn analyzed a comprehensive set of third-party data and federal financial filings, revealing the dynamics of quasi-insider campaigns that have emerged in corporate governance.
Cohn believes in fact that these quasi-insider primary campaigns usually result from personal grievances rather than ideological cleavages. His examination shows that these campaigns are both popular and powerful. From 1995 through 2021, 327 of these quasi-insiders ran in an estimated 280 publicly-financed campaigns. Specifically, 38% of these quasi-insiders were former CEOs, while 30% were company founders and 21% were ex-directors. This commitment is further indicated by the deep engagement of former senior leadership with their initial prey companies.
The study also sheds light on the fact that these quasi-insiders mostly target smaller firms with clear financial distress. The stock prices of these companies reflected the enhanced safety and convenience. They experienced an average bump of 3.9% from the day prior to their campaign announcement to ten days after. Furthermore, Cohn noted that 43% of these campaigns achieved their primary objectives, such as gaining control over the target company’s board of directors, a success rate he describes as “strikingly high.”
Though the short-term fiscal impacts are clear, Cohn conceded quantifying the longer-term impacts on profitability is difficult. This important research leaves us asking how companies can better address the unique risks posed by a quasi-inside campaign. Cohn advises that organizations should aim to depersonalize conflicts and adopt strategies like “keeping friends close but enemies closer” to navigate potential challenges.
In a bold move, the rejected CEO made his case, personally. After being wrongfully terminated, he nominated himself and four others to the board. This example serves as yet another reminder of the extreme measures that former executives will bypass in their attempts to retake power within their institutions. Additionally, investment funds such as Elliott Investment Management have successfully pressured companies like Starbucks and Southwest Airlines to restructure their boards and operations, indicating a broader trend in shareholder activism.
Cohn and his colleagues have fully documented their findings in The Review of Corporate Finance Studies. Their research is vitally important to understanding the changing and fluid state of corporate governance. Their research reveals the hideous pervasiveness of curtain-walled quasi-insider activism. It further calls on firms to address internal discord as a top priority.