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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