Effects of Social Media on Shareholder Activism

Social media is used in everyday life by millions of people throughout the world. People post pictures on Instagram, send tweets on Twitter and update their Facebook statuses and have constant access to these social media platforms. What started out as a social, recreational activity has become an incredibly important marketing tool for individuals and businesses.

Shareholder activism can be defined as mechanisms in which shareholders are able to influence how a company behaves by exercising their rights as partial owners through, for example, publicity campaigns, shareholder resolutions, litigation, whistle blowing and negotiations with management. Often when shareholders are unhappy with the manner in which the company is run but do not have enough shares to influence change in the normal course of business, they seek to achieve their goals through other means.

The instant nature of social media coupled with its worldwide reach makes it an attractive tool for shareholder activism. Whistle blowing is more effective through the use of social media as it encourages discussion and whistle blowers receive protection in certain instances.  It essentially gives shareholders and minorities an electronic voice to raise their concerns.  The public nature of Twitter and Facebook means a tweet or post can reach millions of people and help the shareholder activist reach his objectives faster.  An example is the case of Carl Ichahn’s complaints against Lions’ Gate.  He posted his dissatisfaction with the directors and how he wanted a new board to be elected on a website.  He wasn’t successful but this became a template for other shareholder activists.

A successful example of shareholder activism is Erik Jackson. In 2007 he had a mere 96 shares in Yahoo stock.  He posted his dissatisfaction regarding the performance of the CEO on his blog.  His post was seen by many people who shared his sentiments.  Eventually he received the approval of shareholders who collectively owned millions of shares.  As a result of this pressure the CEO resigned.

LinkedIn is also a very important form of social media in the business sector.  Unlike Twitter, Facebook and Instagram, LinkedIn is a social networking site that is designed specifically for businesses and individuals within the business sphere.  A LinkedIn profile allows you to post articles, share posts and enter into discussions with other members.  These articles could be used to put pressure on directors.

The rise in the use of social media to express dissatisfaction is growing. One however needs to be conscious of the laws regarding defamation and appreciate that your words have the potential to reach millions of readers. The obligation to ensure the correctness or truth of what you publish should never be taken lightly.