Does Coordinated Institutional Activism Work? An Analysis of the Activities of the Council of Institutional Investors

The Council of Institutional Investors is a group of public and private pension funds which collectively own over $800 billion in financial assets within the United States. The Council has provided a forum for these funds to coordinate and communicate with each other on a variety of matters including activism programs aimed at facilitating solution of problems in underperforming portfolio firms. The Council has issued a focus list of poorly performing firms for each of the last five years to its members who have the discretion to pursue activism programs. These lists have included well-publicized underperformers such as IBM, Kodak and Sears along with a variety of less known cases. This study documents the performance of 96 firms which appeared on the Councils focus lists in 1991, 1992 and 1993 relative to several control groups. Firms on Council focus lists experience poor share price performance in the year before before being included on a focus list. In the year after being listed, these firms experienced an average share price increase of 11.6% above the S&P 500. Given that the mean equity market value of Council listed firms was $3.42 billion we estimate a total abnormal dollar gain of these firms of $39.7 billion. This increase is broadly consistent with the view that coordinated institutional activism creates shareholder wealth.