CEOs Are More Vulnerable Than Ever as Shareholder Activism Rises

Olshan Co-Managing Partner and Chair of the firm’s Shareholder Activism Practice Andrew Freedman authored a Bloomberg Law article (subscription required) entitled “CEOs Are More Vulnerable Than Ever as Shareholder Activism Rises.” In the article, Andy discusses the natural inclination of blaming a company's CEO for a firm's financial woes and directional missteps. In the era of shareholder activism, such moves against CEOs have reached a seemingly all-time high. Examples like Scott Thompson's resignation as the CEO of Yahoo Inc. and Mantle Ridge's campaign against CSX Transportation Inc., resulting in Hunter Harrison being appointed as the new CEO, illustrate the point. “CEOs have always been subject to heightened scrutiny by activists—and for good reason,” Andy writes. “As the principal executive officer, a CEO not only is the face of the company but also typically wields significant power to influence the organization’s strategic direction, operations, share price performance, and ESG profile.” He cautions that seeking to remove a CEO at a shareholder's meeting, however, is considered an aggressive and somewhat risky procedure. Such a campaign might even alienate investors and harm the firm's financial picture—especially if the embarrassing information on the CEO is not necessarily publicly known: “However, once exposed through media reports or social media, it enables activists to argue that the misconduct represents toxicity and dysfunction at the management level, and that any attempt by the board to sweep the CEO’s misdeeds under the rug would be problematic from a corporate governance standpoint.”