Shareholders use their knowledge to bring about changes within the management in several ways for better results. It is their responsibility to manage corporations and also ask for results. They are of a significant value to public organizations in that they can purchase bigger stakes in a given short period. Shareholder activists bring along new ideas to help in the development of their value to a corporation. They at times can buy a significant stake from a certain organization and then persuade the management in making specific changes in the company, only to enhance their value. However, having a big stake helps in enhancing influences on an organization. Shareholder activists influence decisions made by an organization in different ways. For example, interfere with the companys compensation plans, political matters, and environmental policies. A stockholder invests in a company; the share price goes up because other investors believe that he will act to their preferences.
Solving problems that may arise, preventing the involvement of shareholder activists becomes very hard and very expensive. This may be due to the lack of knowledge required to make appropriate decisions based on specific questions and tasks. For an organization to choose an appropriate shareholder, they major on cooperation from specialists to benefit from them (Fang et al 283). This helps them in distributing labor and to major in specific fields. Finding shareholders from different backgrounds helps in sharing diverse opinions and their knowledge to make a certain corporation reliable. However, sometimes an organization or management may think that shareholders come to their organizations with their aims most probably to acquire material gain. Managers from different categories of taxpayers are likely to disagree on the policies they use to structure their dividends. Shareholder activists urge company management to do things like; selling business divisions, changing dividends, developing of shares, and changing compensation plans. Shareholder activism influences a corporations behavior positively and diversely based on their rights.
Fang, Yuanli, et al. “Do Executives Benefit from Shareholder Disputes? Evidence from Multiple Large Shareholders in Chinese Listed Firms.” Journal of Corporate Finance, vol 51, 2018, pp. 275-315.