How activist investors have been quietly upending corporate America.
There are few things that almond milk lattes and animated children’s movies have in common. Dependence on consumer demand? Absolutely. Status as an agent of joy? Sure. Energy-inducing? Perhaps.
But on Wall Street, a more concrete through line has recently connected lattes with movies. That line is activist investing. Though shareholders at Starbucks and Disney both called for changes in the last year to reinvigorate growth amid slumping sales and flailing stock prices, only one of these boardroom battles went in favor of the activist. Why?
History might offer some clues. Activist investing is not a new concept. In fact, the practice has existed for roughly a century, dating all the way back to the 1920s when Benjamin Graham wrote to Northern Pipeline, in which he had a small stake, requesting that the company sell the bulk of its ancillary assets in exchange for dividends paid out to shareholders. After executives ridiculed and rejected his proposal, Graham took to the Street, imploring other investors to join his campaign. His plea was ultimately successful and planted the seed for what would eventually become fertile ground for activist investing.
Today’s campaigns are slightly more complex but share the same goal: increase shareholder value. Their proposed strategies to achieve this goal range from leadership changes and strategic overhauls to capital reallocation and divestitures. These categories of recommendations to management have become, according to former Tenet Healthcare CEO and current HBS professor Trevor Fetter, pretty textbook.
“I think the basic activist campaign types will continue to fit in four basic buckets: lever it up [and return capital to shareholders], break it up, sell it, or change the board and management,” says Fetter. “You don't see many campaigns with strategies beyond those four themes.”
Many activists specialize in particular campaign strategies. Jana Partners, for example, has successfully campaigned for the sales of PetSmart, Whole Foods, and Pinnacle Foods. Calls for a sale typically arise if an activist investor believes a company’s growth potential is capped or the industry is consolidating, whereby selling the company is viewed as the best way to preserve shareholder value. In the case of Jana Partners, each sale came with a multi-million dollar payout for the activist.
Those potential gains for investors may explain why new data from Lazard shows activist campaign activity rose by 29% over the historical five-year average in the first half of 2024, making it the busiest first half of a year on record. With all three of the major indices hovering near all-time highs, activist investors are likely paying even closer attention to the stocks that are still underperforming the broader market — and what, if anything, can be done to fix that. Rather than wait for management to turn around the company, investors want to take control of their own bets. After all, they do have some — or a lot of — skin in the game when it comes to stock price deterioration, so if a company has been posting flat or negative growth for several consecutive quarters, why stay idly aboard a sinking ship when there are plenty of other boats keeping afloat?
That is likely what many Starbucks investors were thinking earlier this year. A pullback in consumer spending due to persistently high inflation, coupled with ongoing weakness in China, weighed on sales and transactions, which fell by 3% and 5%, respectively, during the most recent quarter. Founder Howard Schultz also blamed management, including newly inaugurated CEO Laxman Narasimhan, whom Schultz had hand-picked himself. In a post on LinkedIn, Schultz said “U.S. operations are the primary reason for the company’s fall from grace” and encouraged changes to the customer experience, mobile ordering, and product innovation.
Questions around Narasimhan’s ability to reignite growth and reverse Starbucks’ sagging stock price, which had fallen by 20% since he assumed the role, began to circulate. Within months, it was reported that Elliott Management had taken a sizable stake in the company, demanding changes to the board, and not long after, Starbucks announced it was replacing Narasimhan with Chipotle CEO Brian Niccol. In this case, the activist investor got its way.
No such luck for Trian Partners and founder Nelson Peltz’s 15-month proxy fight with Disney. Like Starbucks, Disney has undergone several leadership changes in the last few years, culminating in CEO Bob Iger’s return to the role he retired from in 2020 after his hand-picked successor, Bob Chapek, was ousted. Declining theme park traffic, box office failures, and streaming subscriber losses were just some of the issues that contributed to Disney’s first earnings loss since 2001 and its stock’s worst single-day drop in company history. They were also why Peltz was demanding a seat on Disney’s board. In a 133-page white paper released in March, Peltz called the board “the root cause of Disney’s underperformance” and added “it is unlikely that Disney can realize its full potential if it refuses to sufficiently right-size expenses in legacy businesses that are growth challenged.”
But while Peltz’s proxy fight garnered significant media attention — which was only exacerbated by the support of ousted Marvel chairman Ike Perlmutter, who had pledged 80% of his Disney shares to Peltz — the board ultimately voted against Peltz’s demand for a seat at its annual meeting in April. The decision seemingly served as the final straw for Peltz, as he reportedly sold his entire Disney stake just one month later.
Despite the industry’s mixed track record as of late, fighting from activists at large may be far from over. With the Starbucks win putting wind in its sails, Elliott Management is ramping up pressure on target companies including Southwest Airlines, SoftBank, Texas Instruments, and Anglo American.
Corporations are also becoming more proactive in hedging against activist investors, with Intel recently tapping Morgan Stanley and other advisors for protection. A study from Harvard Law’s Forum on Corporate Governance says settlements between activists and companies are being reached at a faster and more frequent pace, suggesting the time- and cost-intensive nature of these campaigns is becoming too much of a burden for management teams. Some companies are even outsourcing the task of protecting boards from activists through services offered by firms like PJT Partners.
“It's hard for an outside investor to know what a company should do better than what the company management team does,” says HBS professor Suraj Srinivasan, who adds that one thing working in management’s favor is they typically know best. While activist investors can offer valuable perspectives and drive necessary change, management teams are often more attuned to the company’s long-term vision, built from years of day-to-day involvement and firsthand experience.
Campaigns are becoming more diversified, too. Barclays reports that activist campaigns doubled in the Asia-Pacific region during the first half of the year compared to last year. Industry-leading activists now account for only one-fifth of ongoing campaigns worldwide, meaning newer players are entering the scene. A key driver for this trend is the SEC’s introduction of the universal proxy card, which allows investors to vote for any combination of candidates proposed for a company's board of directors, rather than being limited to the slates put forward by management or activists.
“[The universal proxy card is] a game changer — to be able to essentially mount an activist campaign for a fraction of the cost that it used to be when you had to have your own proxy card,” says Fetter. “Now it’s much easier and cheaper to run a campaign.”
Quantity does not equate to quality, however, and the more time companies spend defending themselves against activist investors, the less time they have to focus on operations and growth. One could argue that the seismic increase in activist investor campaigns is doing more harm than good, suggesting Iger was not too far off when he called Peltz’s proxy fight a “distraction” to Disney. While activist campaigns are sometimes warranted, such as in the case of Elliott Management and Starbucks, other companies seemingly have targets on their backs for all the wrong reasons. This is especially true for sectors like real estate, retail, and energy, which may not be in strong enough financial positions to take on the restructuring or cost-cutting measures that activists propose.
Because the general public is not privy to many of the insider conversations that companies are having with these activist investors, there are many unknowns. The question of whether all activist investor campaigns are warranted is not entirely answerable, as it depends on several factors, including the specific context of each campaign, the company’s unique circumstances, and the perspectives of various stakeholders. Some campaigns might aim to genuinely unlock shareholder value, while others may be more focused on achieving quick profits without regard to long-term sustainability.
At the core of the debate is whether activist investor campaigns are a net positive or net negative for the corporate landscape.
“Almost always, [companies] begrudgingly accept that activism is actually good for capital markets in general because it does create a level of [...] performance [...] and governance accountability,” says Srinivasan.
However, even with the best intentions, the outcomes of activist campaigns are not guaranteed. While some campaigns lead to positive changes, others may result in unintended ramifications. A study by McKinsey shows shareholder returns are not sustained 40% of the time after the activist exits a stake. But what would have happened to the company had the activist never entered to begin with? Predicting the future impacts of an activist’s proposals is inherently uncertain and knowing the counterfactual is impossible, which makes it difficult to judge a campaign’s merits.
And so, just as almond milk lattes and animated children’s movies may share surface-level similarities, the underlying complexities of activist investing suggest no single campaign can be judged by a simple set of criteria. Whether it is Starbucks making leadership changes at the behest of Elliott Management or Disney standing firm against Peltz's demands, each case brings with it layers of nuance, context, and unforeseen consequences. While the rise in activist campaigns may provide some companies with a much-needed push toward growth, it can also risk short-term fixes that may derail long-term success. Ultimately, determining whether an activist investor’s actions are warranted is a question that resists a straightforward answer — just as the intricate dynamics of business cannot always be reduced to the price of a latte or a movie ticket.
Michelle Yu (MBA ’26) is passionate about all things media, with experience in business news, documentary film, broadcast journalism, and television. She graduated from Columbia University with a degree in Film and Media Studies and was a producer for CNBC prior to HBS.
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