Few terms can unsettle a corporate leader quite like “activist shareholder.” Traditionally, these investors have been viewed as external forces, often hedge funds or institutional investors wielding their financial clout to demand sweeping changes in corporate boards or operations. High-profile cases abound where activist investors have reshaped the management and strategic direction of major companies. Recent episodes involving Elliott Investment Management pressuring global giants such as Starbucks and Southwest Airlines to restructure underscore the potency and visibility of these campaigns. Yet, beneath this headline-grabbing phenomenon lies a subtler, less scrutinized variant of shareholder activism that originates not from outsider zealots but from those who once stood at the helm of the very companies they now challenge.
This unique category of shareholder activists has been identified as "quasi-insiders." A quasi-insider is typically a former CEO, director, or company founder who, after stepping down or being ousted, retains a significant shareholding and leverages intimate knowledge of corporate workings for activist campaigns. Their connection to the company’s operational core and governance history lends a distinct credibility—and complexity—to their interventions. Unlike detached investment funds motivated purely by financial returns, quasi-insiders bring personal legacy, reputation, and a deep understanding of corporate culture into the struggle for control and influence.
In an expansive analysis spanning over two decades, Jonathan Cohn, associate professor of finance at Texas McCombs, alongside colleagues Mitch Towner and Aazam Virani from the University of Arizona, parsed through thousands of datasets combining third-party shareholder activism records and federal financial disclosures. Their research struck a striking revelation: quasi-insider activism is far more pervasive and effective than previously recognized. Between 1995 and 2021, an impressive 327 quasi-insiders emerged publicly as activists, engaging in approximately 280 campaigns that targeted their former companies. This prevalence underscores the persistence of influence attempts from former leaders and challenges the notion that shareholder activism is solely the province of external investors.
Delving deeper into the profiles, the researchers discovered that a substantial proportion of these quasi-insiders were individuals who had held the highest echelons of corporate power. About 38% were former CEOs, 30% were company founders, and 21% were ex-directors. This breakdown highlights not only the hierarchical seniority of quasi-insiders but also the enduring nature of founder influence, even after formal separation from everyday operations. Their campaigns often center on regaining control of the board or steering strategic corporate decisions, leveraging a mix of personal insight and shareholder authority.
Effectiveness emerges as one of the most remarkable findings from the study. Nearly 43% of quasi-insider campaigns succeeded in achieving their primary objectives. These victories typically involved gaining seats on the board or influencing executive decisions, enabling quasi-insiders to shape corporate governance once more. Cohn underscores how this success rate is “strikingly high” relative to broader activism campaigns. Such efficacy may reflect quasi-insiders’ nuanced understanding of company weaknesses and leverage points, allowing for more surgical and credible activist interventions compared to more detached external investors.
Beyond governance outcomes, the financial markets appeared to respond positively to quasi-insider activism. On average, the stocks of targeted companies experienced a short-term boost of 3.9% between the day before a campaign announcement and ten days afterward. This market reaction suggests that investors interpret quasi-insider activism as a credible signal of forthcoming value-enhancing changes, or at least as a catalyst for strategic reevaluation in companies underperforming or in flux.
However, the longer-term financial consequences remain elusive. According to Cohn, evaluating sustained impacts on profitability or operational metrics proved challenging, as the dynamics following campaigns are complex and multifaceted. Nonetheless, initial data showed no evidence that these interventions harmed the financial health of targeted firms, helping to dispel concerns that quasi-insider activism destabilizes companies or impairs value creation over time.
Interestingly, quasi-insider activism predominantly targets smaller companies confronting financial difficulties or strategic impasses. Large hedge funds often bypass these firms due to insufficient financial incentives, thus opening a niche for quasi-insiders who possess both motivation and insider knowledge to engage in activist battles. Among the more recognizable names examined includes Humana, Hewlett-Packard, and Darden Restaurants, but the majority of quasi-insider activism occurs within less visible and smaller market cap entities.
One poignant illustration involves Destiny Media Technologies, an internet media company. After the founder was removed as CEO in 2017, he launched a self-nomination campaign to join the company’s board alongside allies, arguing wrongful termination and managerial failure. Despite his insider status and compelling narrative, the campaign ultimately fell short. This example encapsulates both the personal and contentious nature of many quasi-insider campaigns, which frequently hinge on disputes among individuals rather than purely strategic or ideological disagreements.
Cohn speculates that quasi-insider activism often reflects expanded battles of ego and identity. CEOs and founders are typically vested not only in a company’s fortunes but also their personal legacies. Thus, their activism embodies a belief that they possess superior insight and capability to run the company better than current leadership. This dynamic introduces significant interpersonal complexity, blurring the lines between financial objectives and personal validation.
For corporations, these insights suggest a nuanced approach to managing relationships with former executives and influential shareholders. Cohn references advice from popular culture—to “keep your friends close but your enemies closer”—emphasizing the strategic value in maintaining ongoing, respectful engagement with prior leaders. By doing so, companies might mitigate hostile quasi-insider activism or even harness the constructive input of seasoned former leadership, alleviating the risks posed by unchecked battles of control.
Ultimately, this emerging recognition of quasi-insider shareholder activism demands a recalibration in how boards, executives, and investors understand and respond to shareholder dynamics. The quasi-insider is neither a distant financial activist nor simply a disgruntled former employee; they embody a complex hybrid wielding personal history, insider knowledge, and substantial equity stakes. As shareholder activism continues to evolve, recognizing these “insiders at the periphery” reshapes the landscape of corporate governance, challenging conventional assumptions and highlighting the intricate web of influence shaping public companies today.
Subject of Research: Quasi-insider shareholder activism and its impact on corporate governance
Article Title: Quasi-Insider Shareholder Activism: Corporate Governance at the Periphery of Control
News Publication Date: February 1, 2025
Web References:
- https://doi.org/10.1093/rcfs/cfad016
- https://www.cnbc.com/2024/08/12/starbucks-and-activist-elliott-met-last-week-to-discuss-settlement.html
- https://www.forbes.com/sites/suzannerowankelleher/2024/10/24/southwest-airlines-bends-to-activist-investor-restructures-board/
- https://www.marketscreener.com/quote/stock/DESTINY-MEDIA-TECHNOLOGIE-65956845/news/Destiny-Media-Technologies-Invalidates-Nomination-Notice-by-Steven-Vestergaard-34124763/
References:
Cohn, J., Towner, M., & Virani, A. (2025). Quasi-Insider Shareholder Activism: Corporate Governance at the Periphery of Control. The Review of Corporate Finance Studies. https://doi.org/10.1093/rcfs/cfad016
Keywords: Business, Corporations, Finance, Public finance
