Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes U.K. Focus Fund

Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes U.K. Focus Fund

Marco Becht, Julian Franks, Colin Mayer, Stefano Rossi

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Date posted :

December 01 2006

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  • shareholder activism • 
  • institutional investors

This article reports a unique analysis of private engagements by an activist fund. It is based on data made available to us by Hermes, the fund manager owned by the British Telecom Pension Scheme, on engagements with management in companies targeted by its U.K. Focus Fund (HUKFF).

In contrast with most previous studies of activism, we report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially outperforms benchmarks and we estimate that abnormal returns are largely associated with engagements rather than stock picking. We categorize the engagements and measure their impact on the returns of target companies and the fund. We find that Hermes frequently seeks and achieves significant changes in the company's strategy including refocusing on the core business and returning cash to shareholders, and changes in the executive management including the replacement of the CEO or chairman.

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Publication Title: 
The Review of Financial Studies
Volume 22, Issue 8, 1 August 2009, Pages 3093–3129


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Fellow, Research Member, Institutional Member, Board Member
Solvay Brussels School for Economics and Management, Université libre de Bruxelles
Real name: 
Fellow, Research Member, Board Member
Said Business School, University of Oxford