What is a gadfly?
Gadfly is a colloquial term for an investor who attends a company’s annual shareholders meeting to criticize the corporation’s executives or express concerns about the company’s direction. A gadfly will address issues for shareholders, often asking management questions about specific company policies or corporate governance.
- Gadfly is jargon for an investor who regularly attends shareholder meetings to express concerns or criticism.
- Named after tiny insects that bite and annoy livestock, the gadfly seeks to irritate the management of a corporation until it acts or compromises on the concerns of shareholders.
- Typically, horsefly proposals focus on environmental concerns, social responsibility, corporate political spending or lobbying, executive compensation, proxy access, special meetings, or voting rules.
- Unlike big activist investors, horseflies are small shareholders.
Named after tiny insects that bite and annoy livestock, the gadfly seeks to irritate the management of a corporation until it acts or compromises on the concerns of shareholders. Questions about executive compensation or inconvenient locations for annual general meetings are often brought to light by way of a gadfly.
A gadfly adds value to other shareholders by voicing their concerns and prompting action. These investors are activist shareholders who advocate for changes in corporate governance by offering voting proposals at annual meetings. Proposals offered by shareholders must be included in the agenda and put to a vote at the next annual shareholders’ meeting.
Because most proposals raise issues that company management tends to avoid, they often trigger a confrontation, forcing management to urge the shareholder base to reject it or act on a compromise. Such proposals can address environmental concerns, social responsibility, corporate political spending or lobbying, executive compensation, access to representatives, special meetings, or voting rules.
Unlike activist investors such as Carl Icahn or Bill Ackman, who buy large stakes in a company for the possibility of directly influencing a company’s board of directors, horseflies are shareholders who have had a minimum of $ 2,000 in equity. of a company for at least one year.
The Impact of Horseflies on Corporations
Proponents of shareholder activism argue that corporate gadflies are at the heart of a growing shareholder democracy that focuses attention on key issues that would otherwise remain hidden. Horseflies play a key role in empowering small investors against corporate managers who may not be acting in their best interest. Most horseflies tend to focus on issues of a religious, public policy, or social investment nature, but issues that focus on corporate governance policies, such as executive compensation, are more likely to gain traction among shareholders with right to vote.
According to Sullivan & Cromwell LLP, a total of 657 shareholder proposals have been submitted to date in 2020. The vast majority of these proposals still focus on environmental and social governance proposals (such as those related to climate change), as well as governance.
Critics of shareholder activism point to the enormous cost companies incur in responding to shareholder proposals. Critics say that the cost to companies to deal with the horsefly proposals is $ 87,000. The argument among some critics is that various individual activists are acting on behalf of the unions in an effort to demonstrate shareholder populism on union issues.
Although institutions such as pension funds are actively involved in submitting shareholder proposals, in 2014 and 2015, the largest number of proposals has been concentrated in a small group of people who may be motivated by personal interests. Together, John Chevedden, William Steiner, and James McRitchie were responsible for a third of the shareholder proposals submitted through mid-2015.