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Hermitage Capital

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HERMITAGE CAPITAL MANAGEMENT CASE

1. Give definition of activist investor and discuss pros and cons

Shareholder activism, also known as shareholder engagement or share ownership, occurs when shareholders use their ownership rights to monitor and influence how their portfolio companies manage ESG issues.

Sullivan and Mackenzie (2006) categorize the activism strategies as (i) dialogue or engagement, in which companies meet with investor to discuss the firm’s strategy, how the firm plans to meet its objectives, issues related to CSR and corporate governance, and so on; (ii) the use of voting and other formal rights, including attending annual general meetings to ask questions, proposing shareholder resolutions, exercising voting rights and calling extraordinary general meetings; (iii) collaboration with other investors through formal coalitions in which investors present a unified voice; (iv) benchmarking, to compare company performance on different ESG issues and encourage companies to improve their performance; (v) media communications to allow investors to communicate their views to company directors and their advisors; and (vi) the ability to influence share price through the buying and selling of shares, as the threat of takeover is recognised as important to focus the management’s attention to shareholder value.

Potential advantages of activist investor:

* Holding Feet to the Fire Because they often purchase, or have the ability to purchase, (or short) large quantities of stock, activist shareholders are powerful. They may also have a stated desire to replace the existing board. As a result, management and the board may be more willing to work with an activist. In addition, activist firms tend to garner a fair amount of press and often have a podium to air their grievances. * New Faces May Mean New Ideas Clearly not every

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