Human Relations in Organizations: Applications and Skill Building 8th Edition by Robert Lussier

Exercise 2

Ganging Up on Management: Storming Shareholders Form Activist Groups
CEOs of public corporations have been put on notice by a new type of shareholder-shareholders who do not accept the company line and create activist groups. Shareholders could always participate in the overall direction of these firms through the election of members of the board and through their ability to have shareholder propositions placed on the ballots, yet several have recently felt that these rights were not enough to have any real effect on these firms. The formation of stockholder activist groups or teams represents a splintering of stockholders' interests from the general group of firm investors.
What is driving all this activity? Displeasure on the part of a growing number of antsy investors with how executives at many companies are managing their businesses and allocating capital. The investors aren't bashful about telling the companies how to get shares higher. Companies continue to grant executives excessive pay packages, or engage in wasteful spending. A lot of companies in our country are poorly managed and bloated, with too many layers at the top.
Although management cannot disregard these activist groups and their plans for the firm, activist behavior has been questioned by management because these vocal investors are looking for short-term gains and paybacks, potentially leaving firms in less healthy condition for the long term.
Also, these groups do not represent the majority of the shareholders of the firm; therefore, they are creating what might be called minority tyranny. It has been argued that if these shareholder groups want to have their voices heard they should go through the normal processes of nominating members to the board of directors and then conducting an election campaign for their representatives.
Are managers who ignore or fight activist groups being ethical?