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An activist shareholder will typically identify an under-performing company or a company with other potential for increased shareholder value and then seek to bring about change, typically operational or strategic change, by putting pressure on the company’s Board. This can be a very rewarding investment strategy.
Different types of investors will have different time horizons for change and exit strategies. Some hedge funds may be looking to secure short-term gains and exit. BlackRock, on the other hand, in their letter to CEOs, encourage companies to take a long-term approach to creating value1.
Other investors, such as CalPERS, the US public pension fund, may seek the adoption of what it views as corporate governance best practices among investee companies, such as diversity, independence, social and environmental responsibility and disclosure.
In the context of a Cayman Islands company2, it is vital that those who are considering the acquisition of a minority stake in a Cayman Islands company (“CayCo”) consider the provisions of the company’s constitutional documents, especially its articles of association (“Articles”) to assess the scope for forcing change should diplomatic efforts not succeed in bringing about the desired results.
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Cayman Islands Perspective on Shareholder Activism
1April 2015 letter from Larry Fink, Chief Executive Officer of BlackRock to S&P 500 CEOs in the US and to the largest
companies in EMEA and APAC in which BlackRock invests.
2This paper addresses only Cayman exempted companies, which is the most common form of company for international business.