Share holder activism

Global corporate world, in the past few weeks, has seen two major developments. Though both of them are from different industries they have very interesting similarity. In the steel industry, it was culmination of half year long bitter fight between the top two players resulting in Mittal steel’s successful takeover of European giant, Arcelor. Guy Dolle, CEO of Arcelor, used every trick in the book to thwart the takeover. He proposed merger of Arcelor with Russian steel giant ‘Severstal’. This merger, conceivably, would have made it impossible for Mittal to acquire Arcelor. Mittal had already raised its offer for the buyout. What turned the deal towards Mittal, were the shareholders. It was shareholders, who rejected the proposal of Severstal and forced Arcelor board to accept Mittal steel’s takeover.

The second development is from one of world’s biggest automakers, General Motors. The beleaguered company is taking several measures to turn lean and profitable. But the shareholders of GM weren’t amused by the pace of it. The biggest individual share holder of GM, Kirk Kerkorian, who owns 10% of GM’s equity, has proposed a tie up of GM with French ‘Renault’ and Japanese ‘Nissan’. Though, it is in very juvenile stage, the GM board of directors has agreed to explore the possibility. GM executives might not like the idea but it has been forced to explore by its own shareholders. It might have been unthinkable a decade ago for GM to tie up with any other automaker for its own survival.

These two instances have highlighted what economists are increasingly terming as ‘new era capitalism’. The successes of today’s corporate are judged by their share price on the bourses and the market capitalization. Today share holders are much more active than they were ever before. In many case, they are not shy of even having a confrontation with the executives. Though this has increased the pressure on the CEOs, with the results being published every quarter, it does satisfy the most basic tenet of capitalism – ‘to maximize shareholder’s value’.

I am sure, this share holder activism, is not going to be limited to these two instances. There would be many more to come.