Activist Shareholders to CEOs: It’s Not About You

Activist shareholders are paying more attention than ever to CEOs’ choice of language—and punishing them for being too focused on independence and control.

When someone holds the title of chief executive officer, it’s fair to expect them to act with a measure of independence, control, and assertiveness. Psychologists call these behavior traits “agentic values,” and research has shown that employees and analysts look favorably on CEOs who possess such attributes.


Tuck professor Mark DesJardine’s research is focused on understanding how investors shape the sustainability of companies and their actions toward other stakeholders. He teaches Social Entrepreneurship in the MBA program. 

But there’s another group of people who aren’t so sanguine about CEOs displaying agentic values: activist shareholders. For these investors, who use their equity stake in a company to influence how it is managed, agentic values don’t so much signal competence as aloofness to the desires of the people who actually own the firm. Moreover, to activist shareholders, agentic values can be a red flag for CEOs that might be inclined to squander corporate resources, or even engage in self-dealing and fraud.

Shareholder activism has gained influence over the past 10 years, as more assets are being managed by activist funds and hedge funds that want to steer firms toward greater profits. As a result, academic researchers have sought to understand why activist shareholders target certain companies. They’ve found that activists are more likely to intervene in corporate management—for example, by choosing board members or top managers—when they see hard indicators of faltering performance, such as low shareholder returns, governance problems, or over-investment issues.

Missing from these studies is an analysis of CEOs’ leadership styles, and the effect these styles can have on shareholder activism. Market observers have speculated that certain shareholders are finely attuned to CEOs’ language, listening for words and phrases that indicate an especially agentic personality in the corner office—and targeting them because of it.

Now, Tuck professor Mark DesJardine has proven it with empirical evidence. In a paper recently published in Organization Science, DesJardine and co-author Wei Shi of the Miami Herbert Business School show that when CEOs display stronger agentic values than their peers, the likelihood of shareholder activism increases by 29 percent. This activism, they found, mainly serves to give shareholders more control of firms and their leaders.

To study the relationship between agentic values and shareholder activism, DesJardine and Shi chose to examine the words CEOs used during the Q&A portion of quarterly earnings calls with investors. The authors obtained the transcripts of earnings calls from 2,179 U.S.-based firms between the years 2003 and 2018 and then compared the text to a customized agentic value dictionary developed and validated by psychologists. This dictionary contains 192 distinct adjectives and verbs that are commonly used in agentic speech. In their sample of earnings calls, the top 10 most frequently used words from the dictionary were do, important, know, opportunity, significant, success, take, think, you, and will.

Some examples of these words used in excerpts of earnings calls come from statements like It is also important for us to be more aggressive in our customer and revenue retention efforts and We made significant strides in improving our customer service.

The CEOs scoring very high on agentic values were being disproportionately targeted by activists. It was off the charts, relative to the other CEOs.
—Mark DesJardine

After the authors scored the CEOs’ text on a metric of agentic values, they compared the scores to Schedule 13D filings that the SEC requires when an ownership-based activist campaign is launched by an institutional investor. As the authors explain, The 1934 Exchange Act requires any shareholder to file a Schedule 13D with the SEC within 10 days of acquiring more than 5 percent of any class of security if they intend to influence or control the management of the targeted company. This filing feature was crucial in limiting our sample to cases of activism.

When they compared the agentic scores of the CEOs to incidents of shareholder activism, a pattern immediately became clear. The CEOs scoring very high on agentic values were being disproportionately targeted by activists, DesJardine says. It was off the charts, relative to the other CEOs.

To illustrate their findings in a real-world context, the authors point to Netflix’s Reed Hastings, who is near the top of their list of the most agentic-speaking CEOs. While Hastings has generated exceptional returns for shareholders between 2011 and 2021 (5720 percent), he has also been criticized for being too independent and ignoring the will of investors. This tension is obvious in the 13D filings. Hastings’ reputation as an independent operator has helped generate 25 demands from 10 different activist shareholders, the authors write.

However, for most CEOs, prominent agentic values are not enough to precipitate shareholder activism. There often need to be real concerns already, DesJardine says. These concerns usually show up as too much spending on stakeholder initiatives—e.g., corporate social responsibility (CSR) activities focused on the natural environment, employee welfare, etc.—or on capital investments and R&D. Disproportionate spending in these areas, by themselves, have been the catalyst for many incidents of shareholder activism. Last year, for example, Danone CEO Emmanuel Faber was ousted by activist shareholders for his “One Planet, One Health” strategy that tied the company’s success to its environmental performance and caused its stock price to plummet. When such managerial decisions happen in concert with strong agentic values, it gives activist shareholders even more of a reason to flex their muscle.

There’s a lot of hidden value in the language CEOs use. Now big data are allowing us to tap into that and develop models that can help corporate leaders and activists.
—Mark DesJardine

For DesJardine, the main takeaways from this research are two-fold. He advises managers to be extra sensitive to how they are perceived by investors, especially when they have big plans to spend money on stakeholder initiatives or R&D, which is common these days. In this context, strong agentic speech can be the tipping point for certain activists. For activist investors, who play an important role by holding management teams accountable, DesJardine stresses that paying attention to CEOs’ leadership style can allow them to spot troubling behavior and intervene before it’s too late. There’s a lot of hidden value in the language CEOs use, he says. Now big data are allowing us to tap into that and develop models that can help corporate leaders and activists.