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Principal-agent problem - Activist investor ups stake in WH Smith but backs management

Geoff Riley

12th September 2021

Here is a good example of activist investors which is related to the principal agent problem.

Knowledge of the role of activist investors and examples of their impact is useful when understanding the economics of the principal-agent problem which many students will cover as part of their Year 13 microeconomics.

Activist investors often build strategic stakes in businesses that they consider are underperforming and many will lobby for changes in the boardroom to initiate a change in business objectives.

Here, Causeway Capital - whose share of WH Smith increased when the business was forced to make a cash-call during the pandemic - is said to be supportive of executive management for a business hit hard by millions working from home and the decline in the derived demand for commuting. But it also has shares in Rover where they are angling for changes at the top of the management structure.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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