INTRODUCTION

Shareholder activism has grown in importance as an investor's tool for putting a kind of
putting constraint on the management of the company for creation of wealth and social justice
presently this has received a lot of attention. Shareholder activism, which was previously
restricted to the United States, is now becoming popular in other parts of the world including
Europe, Australia and even India.
Regulatory reforms with an aim to increase investors authority their managerial standards
internet-based new tech with increase in access to information and greater connectivity have
all contributed to an increase in shareholder activism in recent times around the world. 1
Shareholders, as owners of the shareholdings and residual claimants on the firm's income, are
bestowed upon them by law with a slew of rights to protect their interests. For a long time,
they were satisfied with the benefits they received at the time of exit, such as dividends or
capital appreciation. Previously, shareholders were content to be silent observers of the AGM
or to praise the chairman. However, this is all history, and activism has taken a step forward.
The roles of owner and manager in a corporation have been separated because the owners
lack the necessary expertise as well as the time to manage everyday operations of the
company This separation of roles can result in a situation in which the agent prioritises its
own interests over the interests of the owner, which is known as an agency problem.
2
Effective monitoring in accordance with the strict governance norms would reduce the
agency's conflicts. 3” The board of directors “is responsible for monitoring. If the board fails
to fulfil its fiduciary duty, shareholders may choose to exit the company by selling their
investment, become an activist shareholder and raise their voices, or remain passive
investors.
The activist shareholder resorts to having to raise their concern by exercising their voting
power or other powers granted to them under the "Companies Act, 2013" 4 and this activist
conduct has now evolved into one of the primary governance enforcement mechanisms that
hold managers more accountable and oblige them to perform their fiduciary obligation to the
shareholders.
Shareholder activism aims to improve both personal and community gains. Private profits
supplement shareholder wealth. They can insist on improving the company's performance and
bargain with planning about managerial pay, and distribute surplus to shareholders, thereby
increasing shareholder wealth. Shareholder activism benefits more than just shareholders; it
also benefits employees, customers, society and coming generations 5 ,Through methodical
governance, continuous shareholder supervision keeps management on their toes and ensures
that company's resources are used efficiently which gives improved result increasing
profitability and shareholder value over the course of time. As a result, shareholder activism
benefits both the company and its shareholders. Furthermore, this phenomenon aids in the
1
Nagesh Rudrakanthwar, “Recent Trends in Shareholder Activism and Its Impact On The Firm's Financial
Performance And Its Governance’’ (2001) 4(5) Indian Journal of Law and Legal Research 2
2
< http://docs.manupatra.in/newsline/articles/Upload/7C05ECAC-16B5-485B-88FA-BD2CACBE239 >accessed
on 11th March 2023
3
<https://www.wallstreetmojo.com/shareholder-activism/ > accessed on 11 th March 2023
4
The Companies Act 2013
5
< https://thelawreviews.co.uk/title/the-shareholder-rights-and-activism-review/india> accessed on 11 th March
2023
resolution of leadership-shareholder conflicts in order to foster a trustable and thriving
business environment. As a result, the corporation's market position improves, further
enhancing its prospects6.
This paper analyses the history and evolution of shareholder activism its importance in
company’s management and profit making the paper critically examines the current position
of shareholder activism in India and what is the future of corporate governance with respect
to shareholder activism

ROLE OF SHAREHOLDER IN A COMPANY

A shareholder is an individual or entity who owns one or more shares of a company's stock. A
shareholder's role in a company varies depending on the type of company and the number of
shares owned, but what does a shareholder bring in to a company
Shareholders provide such capital to the company which it requires to start and grow its
operations. They invest their money in the company by purchasing shares, and the
organization employees use that money to finance its operations and expansion.
Ownership: Shareholders own a portion of the company, giving them a stake in its success.
They benefit from the company's profits and can sell their shares for a profit if the company's
value rises.
Governance: Shareholders have a say in how the company is run. They elect the board of
directors, which is responsible for making important decisions about the company's strategy,
operations, and management. Shareholders can also propose resolutions and vote on issues
like mergers and acquisitions, as well as dividend payments.
Accountability: Shareholders hold management and the board of directors responsible for the
company's decisions and actions. They have the right to demand transparency and
accountability from the company, and they have the right to sue if their rights are violated.
Shareholders can contribute valuable expertise and experience to the company. Large
institutional shareholders, such as pension funds and investment firms, frequently employ
teams of analysts and experts to advise and guide the company's management.
Shareholders contribute to the company's profit and management by investing more money in
it, which can be used to finance new projects, expand operations, or develop new products or
services. They also support the company's strategic decisions, such as mergers, acquisitions,
or divestitures, which can lead to increased revenue and profits.
Shareholders can hold the company's management team accountable for its decisions and
actions, which can help to ensure that the company is operating efficiently and effectively.
They can also advocate for changes in the company's policies or practises that can lead to
increased profits, such as cost reduction, operational efficiency improvement, or investment
in new technology.

6
Sridhar, I, ‘Corporate Governance and Shareholder Activism in India—Theoretical Perspective’ (2016) 6
Theoretical Economics Letters 731.
Shareholders do have the following rights and responsibilities:
Shareholders have the right to vote on certain issues, such as the election of directors and
major business decisions affecting the company7
Dividends: If the company decides to pay dividends, shareholders are entitled to a portion of
the company's profits. .8
Ownership: Shareholders own a portion of the company, which means they have a claim to its
assets and earnings.
Shareholders have the right to obtain information about the company's financial performance.
Shareholders can keep track of the performance of the company and hold the board of
directors and management accountable for their actions.
Ownership: Shareholders have a legal claim on the assets of the company and can sell their
shares for a profit or loss.
Inspection of books and records: Shareholders have the right, subject to certain restrictions
and conditions, to inspect the company's books and records during business hours.
Shareholders have the right to propose resolutions on issues that concern them, provided they
own a certain percentage of the company's share capital.
Shareholders have the right to sue the company for certain actions that are detrimental to their
interests, such as oppressive behaviour by majority shareholders or mismanagement by the
company's directors.
Meeting notice: Shareholders have the right to receive notice of all general meetings of the
company, as well as to attend and vote at those meetings.
Choosing how much the directors' salaries should be9. Stockholders must ensure that the
amount they will give will cover the director's expenditures and cost of living in the city
where he or she lives without compromising the company's coffers.10
Shareholder activism is a way for shareholders to use their ownership position to advocate for
positive change within the companies they invest in by proposing changes in the company's
policies, such as enhancing social or environmental performance, increasing board diversity,
or adopting better corporate governance, and by directly interacting with the company's
management team to discuss their concerns and propose solutions, as well as by building in

Shareholders also work together with other minded individuals’ shareholders to increase their
influence and voice. Shareholders can achieve their common goals by pooling their resources
and expertise.

7
The Companies Act 2013
8
<https://corporatefinanceinstitute.com/resources/equities/shareholder/> accessed on 11 th March 2023
9
The Companies Act 2013, s235
10
Fisch, Jill E., ‘Measuring Efficiency in Corporate Law: The Role of Shareholder Primacy’ (2006) 31(3) J.
CORP. L 637.
WHAT IS SHAREHOLDER ACTIVISM
Shareholder activism is defined as "proactive efforts [on the part of shareholders] to change
firm's behaviour or governance rules." This includes shareholder efforts to bring about a
transformation in the company's management in governing the company to protect the
shareholders' interests. According to Bernard Black, it is the formal or informal monitoring of
corporate management. “The Companies Act 2013” 11 is the primary source of law in India
governing shareholder activism. In addition to the Act, the “Securities and Exchange Board
of India (SEBI) regulations” also provides for certain rights and remedies vested to a listed
company and its shareholders. Certain transactions require the approval of shareholders under
the Companies Act of 2013. 12Shareholders have the right to file a class action lawsuit against
the company, its directors, and third-party advisers. They have the right to sue for oppression
and mismanagement, as well as to leave under certain conditions.
With the rise of corporate raiders, the earliest form of shareholder activism emerged in the
United States. In the 1970s, when executives treated conglomerates as monopolistic
oligarchies, these raiders emerged as a counter-force these executives were also provided
large pay packages and private pensions. Some of these corporate raiders were a force to take
over the management of the company and buy their stocks back while others completely took
over the company and mostly concentrated on restructuring it with considerable PR efforts,
these raiders were able to shed the "raider" label over time and created an activist image for
the shareholder. Despite the criticism, several studies have show that shareholder activism
brought financial discipline into America's corporate firms with sweeping out of
management excesses.
Proxy Advisory Firms (PAFs)" governed by the "Securities and Exchange Board of India
(Research Analysts) Regulations 201413" have significantly aided shareholder activism. PAF
recommendations have proven to be significant in deciding shareholder voting patterns.
14
Recent developments in Indian law have resulted in increased standards of corporate
governance, the creation of new remedies for shareholders, and an improvement in
shareholder rights, among other things Activist shareholders use their right to increase and
improve the value of their shares. Shareholder activists are interested in generating value by
being a positive catalyst in the company's growth through such activism. Shareholder
activists created value during the time when global conglomerate proposed selling one of its
business units to another subsidiary of its parent.
Shareholder activism ensure a high level of participation from the shareholders with respect
to company decision-making and active participation with management this impacts the
company's corporate decision positively and thus improves corporate governance. A
shareholder can hold shares in the company for several years to ensure a long-term return on
investment. Activist shareholders seek to improve the company's performance in order to
maximise their investment's return.15

11
The Companies Act 2013
12
Umakanth Varottil, ‘The Advent of Shareholder Activism in India’ (2012) Journal on Governance 9.
13
Securities and Exchange Board of India (Research Analysts) Regulations [2014]
14
<https://corporatefinanceinstitute.com/resources/equities/activist-shareholder/> accessed on 11 th March 2023
15
Sourav Dutta, ‘Rising Shareholder Activism in India: A Step Towards Improving Corporate Governance’
Swarajya (Delhi, 25th August 2021)
There have been numerous cases where shareholders have blocked transactions that may have
a negative impact on the shareholders' interests. As we all are aware that shareholder do not
have the right to approve such decisions where their interest lies with the party. In this
scenario, the interests of minority shareholders are very important. Shareholders can also
force a company involved in a large transaction to renegotiate the terms of the contract. For
example, in 2014,16 Maruti Suzuki was criticized for failing to obtain shareholder approval
for large transactions various shareholders including the infamous shareholder activist LIC,
intervened in the transaction and challenged it.
Unfortunately, the majority of shareholder activism and research have been focused on large
corporates and smaller companies’ shareholders find it difficult to interact and engage due to
its insignificant institutional presence. In order to silence dissenting voices, some large
corporations have filed lawsuits against “investors,” “bloggers” and “advisory firms”. Such
actions will only result in reducing the management accountability further, so an increase in
shareholder activism would be an important step in making companies accountable for their
mismanagement to the shareholders.

FORMS OF SHAREHOLDER ACTIVISM

There are several kinds of shareholder activism. "Participative shareholder activism” is the
first type. This type of shareholder is more likely to attend shareholder meetings and exercise
their corporate franchise. Minority shareholder participation may thus influence the outcome
of corporate decisions. 17Even if the decisions are the same because minority shareholders
have insignificant shareholdings in the company, management and controlling shareholders
cannot ignore the overwhelming response. This type of shareholder is more concerned with
attending shareholder meetings and expanding their business.
The second form of activism is more direct. "Interactive shareholder activism” entails
shareholders engaging in direct dialogue with management. 18 Large stockholders want to
interact with the management and get an update on the company's operations. Such
interaction typically occurs when shareholders are dissatisfied with management's approach
to certain issues, or when the company engages in a significant transaction (such as an
acquisition) or endures a significant loss such as a corporate fraud.
An expanded version of this interactive type leads to the third category, in which shareholders
adopt a “combative strategy.” This includes efforts to depose monopolistic management
through processes such as proxy fights or hostile takeovers, which result in a change in
company control. A more aggressive approach would be to sue the company, along with the
directors and its management.

16
Ajaz Ul Islam, ‘Do Shareholder Activism Effect Corporate Governance and Related Party Transactions:
Evidences from India’ (2020) 13(2) Indian Journal of Corporate Governance 2.
17
Thomas W. Briggs, “Corporate Governance and The New Hedge Fund Activism: An Empirical Analysis”
(2007) 32(4) J. CORP. L 681.
18
Brian R. Cheffins & John Armour, “The Past, Present and Future of Shareholder Activism by Hedge Funds”
(2011) 38 J. CORP. L 51.
REFERENCES

Nagesh Rudrakanthwar, Recent Trends in Shareholder Activism And Its Impact On The
Firm's Financial Performance And Its Governance, Volume 4, Indian Journal of Law and
Legal, No 5, 2001

Sridhar, I, Corporate Governance and Shareholder Activism in India—Theoretical

Perspective,Volume 6 , Theoretical Economics Letters, 2016

Stuart L. Gillan! Laura T. Starks Corporate governance proposals and shareholder activism:
the role of institutional investors, Volume 57, Journal of Financial Economics, 1999

Fisch, Jill E, Measuring Efficiency in Corporate Law: The Role of Shareholder Primacy,
Volume 31, Journal Of Corporate Law, No 3, 2006

Umakanth Varottil, The Advent of Shareholder Activism in India, Volume 1, Journal on

Governance, No 6, 2012

Sourav Dutta, Rising Shareholder Activism in India: A Step Towards Improving Corporate
Governance’ Swarajya (Delhi, 25th August 2021)

Ajaz Ul Islam, Do Shareholder Activism Affect Corporate Governance and Related Party
Transactions: Evidences from India, Volume 13, Indian Journal of Corporate Governance, No
2, 2020

Thomas W. Briggs, Corporate Governance and The New Hedge Fund Activism: An Empirical
Analysis, Volume 34, Journal On Corporate Law, No 4 , 2007

Brian R. Cheffins & John Armour, ‘The Past, Present and Future of Shareholder Activism by
Hedge Funds, Volume 38, Journal For Corporate Law, 2011

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