A panel at The Deal's M&A Outlook 2009 conference discussed the effectiveness of hedge funds' activist campaigns. The panel noted that "activism" applies to any shareholder that tries to improve the performance of a company. Hedge funds were noted for their ability to get companies to better communicate with investors about their strategy and performance. It was pointed out that activists are getting more "aggressive and creative" and that institutional investors who are not themselves activists do align with activists to instigate change.
When advocating change at an underperforming company, the investor has the high ground. A sensible business case or complaint about poor corporate governance instantly arms the investor with tools needed to a) pressure the company through direct discussions, the media and other means; and b) gain the support of other investors who would also benefit from the desired change.
Hedge funds are virtually the only institutions in our market with the sophistication and wherewithal to effectively advocate for change at corporations. The role of sheriff is important and hedge funds should embrace activism as a regular business strategy, not only to identify and create value, but also to enforce market discipline and fair play.