Thursday, 27 February 2014

P1 wider reading: shareholder activism articles

The P1 syllabus has a small section on shareholder activism – that is, shareholders who take an active (rather than passive) role in corporate governance, and use their position as owners of the company to make demands on an entity’s management. Pressure tactics they can use include voting for the removal of directors or disposing of a large amount of shares (in the process hurting the share price).

Shareholder activism may largely seem a theoretical area of the syllabus: individual shareholders don’t often attend AGMs, much less propose resolutions, and indeed most shareholders own a wide variety of investments in their portfolio and will not reasonably track the management and governance issues at each company in which they hold a small interest.

However, in the world of ACCA exams the theoretical is occasionally tested in a case study as reality, so it shouldn’t be a surprise if you encounter a shareholder activist in your three hours in the examination hall. It is useful, then, to put a face to the theory, and there is no activist shareholder more famous than Carl Icahn. Icahn is a seasoned investor who has made a habit of building large shareholdings in publicly listed entities (often anonymously at first), and then demands management to make significant decisions, ostensibly to benefit other shareholders. Such demands have included spinning off parts of companies, and buying back shares.

Wider reading 
The Economist has in the past months printed a number of articles about Icahn, and they are well worth a read to help you better envision a shareholder activist when you are preparing for your exam. For those of you interested by the personality (and with significantly more time on their hands that they needn’t devote to studying!), there is a longer piece in the New Yorker about the man from several years ago. 

The Economist also has a number of articles on shareholder activism more generally. These should provide more than enough wider reading on the topic. In the context of P1 the topic is a relatively small one, however this background reading should be quite helpful with memory recall. Also, the P1 exams often take inspiration from current events for papers set one or two sittings later. With Icahn and other shareholder activists more frequently in the news as of late, there is a non-negligible chance that the topic will be examined in a sitting shortly!

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