Few phrases are as likely to send shivers down a CEO’s spine as “activist shareholder.” In recent years, investment firms like Elliott Investment Management have demonstrated their formidable influence, successfully pressuring major corporations such as Starbucks and Southwest Airlines to restructure their boards and rethink their strategic operations. These campaigns often make headlines due to their scale and confrontational nature, painting a picture of corporate upheaval led by powerful, well-resourced outsiders.

However, a different kind of activist shareholder is quietly reshaping boardrooms across the corporate landscape. Jonathan Cohn, Associate Professor of Finance at the McCombs School of Business at the University of Texas, refers to them as “quasi-insiders.” These individuals—former CEOs, directors, or founders—retain substantial ownership stakes and possess intimate knowledge of the inner workings of the organisations they once led. Unlike traditional activist investors, who are external to the companies they target, quasi-insiders are deeply embedded in the corporate histories they seek to influence, making their campaigns uniquely personal and often strategically incisive.

Cohn’s latest research, conducted in collaboration with Mitch Towner and Aazam Virani from the University of Arizona, explores the prevalence and impact of quasi-insider activism. Analysing a wide array of third-party datasets and federal financial filings, the researchers identified 327 quasi-insiders involved in approximately 280 public activist campaigns between 1995 and 2021. These individuals were not fringe actors; 38% were former CEOs, 30% were founders, and 21% were ex-directors. Perhaps most notable is their high success rate—43 per cent of these campaigns met their primary objectives, such as securing board representation or influencing corporate strategy. In Cohn’s words, this is a “strikingly high” figure, especially when compared to traditional activism outcomes.

Investors seemed to respond positively to such interventions. On average, the share price of the targeted firms rose by 3.9 per cent in the ten-day window following the announcement of the activist campaign. While the longer-term effects on profitability were less clear and more challenging to quantify, the data revealed no signs that these quasi-insider efforts harmed the financial standing of the companies involved. Cohn suggests that the results challenge common assumptions about shareholder activism, particularly the belief that it is exclusively driven by hedge funds or large institutional investors pursuing short-term gains.

Interestingly, quasi-insider campaigns predominantly targeted smaller firms that were underperforming financially—organisations often overlooked by significant hedge funds due to the limited returns they might yield. In such cases, personal motivation usually plays a pivotal role. One example cited is Destiny Media Technologies, where the ousted founder and former CEO attempted to reclaim influence by nominating himself and four allies to the company’s board. His argument was twofold: that he had been wrongfully dismissed and that current leadership was faltering. Although the effort ultimately failed, it underscores a recurring theme. These campaigns may be as much about personal vindication and unresolved tensions as they are about strategic direction or corporate mismanagement.

Cohn concludes that companies might reduce the risk of quasi-insider activism by maintaining open lines of communication with former leaders, particularly those who continue to hold significant equity stakes. Rather than severing ties entirely, boards might consider ways to constructively engage with ex-CEOs and founders, recognising that their historical insights and emotional investments can, if handled diplomatically, be assets rather than threats. Quoting the timeless advice of Michael Corleone from The Godfather Part II—“Keep your friends close but your enemies closer”—Cohn suggests that a strategic approach to corporate relationships may be just as crucial as any policy or protocol in safeguarding governance stability.

More information: Jonathan Cohn et al, Quasi-Insider Shareholder Activism: Corporate Governance at the Periphery of Control, The Review of Corporate Finance Studies. DOI: 10.1093/rcfs/cfad016

Journal information: The Review of Corporate Finance Studies Provided by University of Texas at Austin