Norway’s $1.7-trillion sovereign wealth fund, a large shareholder of Microsoft, recently voted against CEO Satya Nadella’s dual posting as chairman of the board, and his nearly $100 million pay package. The fund did this due to its stance against large salaries, and dual responsibilities. However, the majority of the shareholders supported Nadella, and backed his appointment, and compensation. The Norway fund’s anti-vote fits into a larger pattern of shareholder activism, which involves institutional and small investors, cuts across several issues, and is seen across continents, and nations.
Asset sales, buybacks of shares, strategy, leadership, capital efficiency, climate change, and corporate ethics are increasingly coming under scrutiny. From Silicon Valley to Mumbai, big oil to tech, investors are no longer content to remain silent partners, and rubber-stamp the decisions of the promoters and boards. In 2021, the US-based Invesco and the UK-based Abrdn, which together held nearly 18 per cent in Zee Entertainment, sought the removal of CEO Punit Goenka, along with an overhaul of the board. This led to a sustained proxy war between the global investors, and promoter family, which spilled into courtrooms and regulatory forums.
Although Goenka continues to be the CEO, the shareholder activism forced Sony to walk away from a proposed $10-billion merger with Zee in early 2024. The potential buyer cited issues like unresolved governance, and leadership uncertainty. Between 2017 and 2019, Maruti’s shareholders repeatedly voted against proposals to increase royalty payments to Japan’s Suzuki Motor. Investors argued that the proposed hikes, which were cleared by the bord, were excessive. The board renegotiated the terms. The case proved that even the small, and minority shareholders can push for excessive changes.
Even small, seemingly-inconsequential institutions can make a difference. In 2021, a little-known activist fund, Engine No.1, which held a mere 0.02 per cent of ExxonMobil, achieved what decades of environmental protests did not. The fund led a movement that ended with the election of three dissident directors on the board of the world’s largest listed oil company, and defeat of the management-backed candidates. Of course, the victory was possible due to the coalition-building among the different shareholders, as Engine No.1 secured the backing of giant pension funds.
Subsequently, Exxon’s strategy reflected climate transition risks, not just quarterly profits. The oil giant recalibrated capital allocations, expanded low-carbon investments, and adopted a more restrained tone on the growth of fossil fuels. While it remains deeply rooted in the exploration and marketing of hydrocarbons, the episode fundamentally altered how energy boards think and act. More oil firms directed more efforts towards green energy, and energy savings. Diversification into renewable sources became the norm, and experts contend that several fossil-fuel players are likely to morph into the producers of solar, wind, and hydrogen energy.
Shareholders question diversifications, and even straight-forward linear but exponential, growth. In 2023, activist-investor Starboard Value built a near-two per cent stake in Salesforce, and pressed for aggressive cost controls, and margin expansion. This was a time when most enterprise-software firms believed in frenetic growth, rather than profitability. Salesforce had to respond with a 10 per cent workforce reduction, tighter expense management, and sharper revenue-to-profit conversion. The stock rallied, as investors rewarded the new focus on operational efficiency, and profits. Indian IT noticed that capital efficiency mattered as much as innovation.
In 2019, Elliott Management, which had a $3.2-billion stake in AT&T, launched a public attack on the telecom major’s strategy to diversify into media, and emerge as a conglomerate. The acquisitions of Time Warner and DirecTV, Elliott argued, destroyed shareholder value, and distracted AT&T from its core communications business. Within three years, the Telco unwound its M&As. It spun off WarnerMedia, which was merged with Discovery, and became a focused telecom operator. The divestment was widely seen as an admission that the activist-investor’s critique was valid.
What emerges from these examples is not a single theory of shareholder activism but a widening set of outcomes that Indian and global boardrooms need to contend with. Investor opposition does not follow a single script. It can take on various forms, tackle several subjects, and end in public ruptures, strategic retreats, regulatory and judicial intervention, and corporate resets. In some cases, as with Microsoft, shareholders’ dissent may be symbolic to begin with, but can gather steam over time. The vote against Nadella did not alter the leadership structure. Yet the signal is on record.
Over time, such signals may shape the boards, and the design of executive pay packages. Even when a vote fails, it results in internal and external conversations and debates, especially when the media highlights them. In other cases, as was evident in Zee, investor interventions destabilise operations, and have commercial consequences. The pressures from the shareholders can alter the strategic trajectories of the companies. Zee Entertainment rethought its strategies, even as the promoter-family fought to retain its hold. In Exxon, the mindset changed, even if only slightly.
A decade ago, shareholder activism in India was minimal, except in hotly-contested, politicised, and sensitive cases. For example, state-owned institutions, with large shareholdings, finally opposed the late Swraj Paul’s attempts to take over DCM and Escorts in the 1980s. In the 1990s, the former did the same, when they wrested management control in L&T away from the Ambani family. Today, it is an embedded force, and the impact is felt across firms. What is happening globally, i.e., a narrowing gap between promoter-management-board powers, and investors’ influences.
Yet, the activism in India still looks different from the US. This is because promoter holdings remain high in the former, hostile takeovers are rare, regulatory and legal processes play larger roles, and proxy battles at the shareholders’ meetings are uncommon. But things are changing, and an underlying discipline is being imposed on internal boardroom decisions from the outside. Promoter control offers insulation, which is not absolute. Institutions apply pressures through courts, voting patterns, media narratives, and merger approvals. Small investors react, and retaliate if they remain unhappy. Governance stress turns into systemic risks.
Shareholder activism is moving beyond questions of short-term financial returns, and valuations, into the architecture of corporate power. Hence, most firms believe in consensus and negotiations, rather than resort to confrontations. They need to involve large and small investors in the decision-making process, and convince them about the necessity of the strategic and tactical initiatives. Shareholders are not rubber-stamps, and institutions are not satisfied with board positions, especially if they form a minority. Powerful hedge funds, as well as activist-investors, believe that they have the right to influence firms, and boardrooms.
