Charles Nathan is a senior advisor at Finsbury LLC, and an adjunct professor of law at Yale Law School and Columbia Law School. This post is based on a commentary by Mr. Nathan. Related research from the Program on Corporate Governance includes Who Bleeds When the Wolves Bite? By Leo E. Strine, Jr. (discussed on the Forum here), and Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here).
At first blush, activists embracing socially responsible investing sounds like an oxymoron. After all, a common perception is that activist investors are solely financial engineers who seek short-term stock market gains by leveraging balance sheets, selling off valuable corporate assets and imprudent cost-cutting of R&D and other long-term value creators. What could be farther from short-term financial engineering than socially responsible investing, which typically looks to a much longer-term impact on the company’s financial and commercial performance?
However, like so much in life, the real world is far more complicated and harder to categorize. First, many activist campaigns are not about financial engineering in any sense. While activists sometimes do campaign on platforms that include (or perhaps consist principally of) cost-cutting, far from all of these are imprudent cost reductions at the expense of long-term growth. More important, many activist campaigns focus on building the business through better organizational structures and/or more effective focus on improving the quality of goods and services. Indeed, the latter type of activist investor policy has been in the ascendant among leading activist investors for several years now.
