For the purpose of this article words shareholder and investor will be used interchangeably

Definition of shareholder activism

According to Investopedia, shareholder activism is defined as ‘a way that shareholders can influence a corporation’s behaviour by exercising their rights as partial owners’. Cloyd M in her Harvard Law School article explains that shareholder activism is on a spectrum and there a different levels to it. She further opines that shareholder activism encompasses different actions taken by shareholders in a publicly listed company to evoke results. Shareholder activism usually entails attempts by shareholders to impact the company’s policies and choices, usually, this is achieved by public campaigns and private engagements with executives. Uche C.O et al submitted that in Nigeria when it comes to shareholder activism, there are two groups of shareholders, namely institutional shareholders, and non – institutional shareholders. Non- institutional shareholders are also categorized into two groups small individual shareholders, who then make up a shareholder’s associations and large individual shareholders

The types of shareholders and their involvement in shareholder activism

Institutional shareholders– Institutional shareholders are also known as institutional investors. According to the Corporate Financial Institute, an institutional investor is ‘an ‘organization that invests on behalf of its members’. They typically amass funds from several investors and in turn, invest in numerous financial instruments with the aim of making a profit. Examples of institutional investors are banks, mutual funds, hedge funds, pension funds, and insurance funds, to name a few.  Generally, institutional investors play a pivotal role in shareholder activism; this is due to the fact that they are responsible for the management of substantial funds from the public which they have invested in companies. It has been submitted that institutional shareholders tend to propel the most changes in an organization because of the size of their holdings in companies.

Non- institutional shareholders- depending on the size of their shareholdings non-institutional shareholders can either be large individual shareholders or a small individual shareholders (who then form a shareholder’s association)

  • Small individual shareholders- As a result of their small shareholding which makes their voting rights miniscule, small individual shareholders have the disadvantage of having less influence over management. Thus, most small individual shareholders enhance the weight of their votes by forming a shareholder’s association; whereby other small shareholders temporarily pool their votes together in order to participate in shareholder activism. Uche C. O et al submitted that small shareholders in the form of shareholder’s associations lack the same information advantage as large individual shareholders; notwithstanding they are still able to impact business plans and board nominations.
  • Large individual shareholders- Due to the size of their shareholdings individual large shareholders are able to effect changes easily within an organization, without collaboration with other shareholders. Sarkar J & Sarkar S argue that due to their substantial investments as well as significant voting power to protect these investments,  large shareholders are more inclined to be effective at monitoring company management than small and dispersed shareholders because they have sizable investments and sizable voting power to protect these investments. Also, they are prone to be engaged in relational investing and be more invested in the company for a prolonged period.

Corporate governance benefits of shareholder activism

  • Promotes accountability – shareholder activism promotes accountability. An increase in shareholder participation in management affairs has the potential to encourage greater candor and accountability. Through shareholder activism, the company’s strategy, financial performance, and risk management procedures can be scrutinized by shareholders. Thus, shareholders may then suggest alterations to the corporate governance structure; such as the separation of the chairman from the CEO or the addition of more independent board members, in order to optimize the company’s performance.
  • Introduction and enforcement of new and trendy corporate governance practices

In Europe, the push for Environment, Social, and Governance (ESG) practices has mainly been championed by shareholder activism, especially institutional investors (See Institutional Investor ESG Engagement: The European Experience). It has been opined that in Europe institutional shareholders have been so vital in pushing for new governance trends and practices that regulatory bodies taken notice of their importance (See European Commission (2021a) Strategy for financing the transition to a sustainable economy. Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, 6 July 2021, COM (2021) 390 final. In Nigeria, the push for the Environmental and Social practices of ESG, which are still relatively new areas in corporate governance is being propelled by shareholders (See Nigeria: The Future of Sustainable Investment

Possible disadvantages of shareholder activism

Despite the many benefits of shareholder activism, some stockholders may be more concerned with immediate profits than with long-term viability, which can result in choices that are not beneficial for the business or its stakeholders. This view has been echoed by Bechts M et al they  asserted that shareholder activism can create a system that is obnoxious, self-serving, and ineffective which in turn can be used by fund managers and other investors for personal gain (See Returns to shareholder activism: Evidence from a clinical study of the Hermes U.K. Focus Fund’). In Nigeria, there has been evidence of shareholders trying to obstruct lawful operations and the efficient function of the business (see ‘Shareholder Activism -How feasible?’).

Regardless of the disadvantages, the benefits of shareholder activism out-weighs the drawbacks, everything in life has its pros and cons.

Looking at shareholder activism from the Nigerian Point of view

The focus of most literature on shareholder activism has been from a Western perspective. It has been submitted that Nigeria presents different prospects and obstacles for shareholder activism than other nations. A lack of transparency, inadequate board monitoring, and a concentration of power among controlling shareholders are only a few of Nigeria’s deficient corporate governance standards. Thus, shareholder activism is pivotal in mitigating the effects of Nigeria’s deficient corporate governance standards by promoting increased accountability, transparency, and board independence. In Nigeria, we have seen instances where shareholder activism has been instrumental in stopping the fraudulent sale of business assets and spare-headed the removal of directors who were underperforming (See AGM shareholders flay WAPCO over sale of elephant).

Despite the success of shareholders in holding companies accountable, it has been submitted that Nigeria is not reaping the full potential of shareholder activism due to the fact that a hand full of shareholders are unaware of their powers when it comes to holding executives accountable(See How Shareholder’s activism ensures accountability, protects listed firms ).

This view was echoed by Uche C. O et al, they asserted based on empirical research that the number of institutional shareholders engaging in shareholder activism in Nigeria was very small. In order to reap the corporate governance benefits of shareholder activism, it must be encouraged. Institutions like the Securities and Exchange Commission (SEC) in their Code of Corporate Governance for Public Companies 2011 have encouraged for greater shareholder activism.

The SEC Code (2011) states that “institutional shareholders and other shareholders with large holdings…” should ‘seek to positively influence the standard of corporate governance in the companies in which they invest”.

The following have been identified as reasons why shareholder activism has not reached its full potential in Nigeria

  • Lack of knowledge: some Nigerian shareholders are unaware of the subtleties of corporate governance. They may find it challenging to successfully participate in shareholder activism as a result of this.
  • Limited financial and informational resources could make it challenging for shareholders, especially small individual shareholders in Nigeria to actively engage in shareholder activism.


In summary, regardless of the cons, shareholder activism can support improved corporate governance in Nigeria by fostering openness, responsibility, and board independence, tackling social and environmental challenges, and encouraging ethical business conduct.

Chioma Mordi


About The Society for Corporate Governance Nigeria

SCGN is a registered not-for-profit organisation committed to the development of corporate governance best practices in Nigeria. Today, the Society is the foremost institution committed to the development and promotion of corporate governance best practices in Nigeria.