GameStop: a new era of shareholder activism?

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By Dr Christoph Biehl
Associate of the Lloyds Banking Group Centre for Responsible Business, Department of Management


The history of shareholder engagement and activism – particularly in the US – is one of ‘the little man’ making his voice heard by buying shares. So what’s so different about the current situation with GameStop?

Well in the past, retail investors would buy shares in companies that were the target of their activism in order to be able to speak at their annual general meeting. Buying just a few shares literally gave them a voice to raise concerns about the company’s actions in front of their shareholders.

But what we are seeing with GameStop is different. Retail investors are buying shares for three reasons:

  • to support a ‘bricks-and-mortar’ business under pressure from online competitors, especially during the COVID pandemic;
  • to harm the hedge funds who are running ‘short positions’ on GameStop’s share price (i.e. borrowing shares to sell immediately in the hope of buying them back later at a lower price, then keeping the difference as profit before returning them);
  • to get compensation and right the wrong of the global financial crisis, which many millennials believe was caused by the risk-taking and greed of hedge funds. They remember the devastation caused to their friends and families, losing their jobs or homes and drifting into poverty, and are determined to take back some of the money from those they hold responsible.

The way the GameStop activists are organised is also different. In the past, shareholder activism was often done by NGOs representing victims of a company’s actions and trying to raise awareness for their cause. But this time it revolves around users on the social media forum, reddit. The media’s depiction of who’s involved ranges from ‘trolls with a trading app’ to ‘bona fide financial analysts’.

The truth seems to be somewhere in-between yet the strategy the forum members set out to follow has certainly worked. Behind the trolling and memes, there are posts that show in-depth knowledge of the financial markets. Critical debates are taking place and knowledge is being exchanged, leading to swarm intelligence.

So have the reddit activists achieved their goal and performed a fintech version of the legendary Robin Hood? The jury is still out. Mainly because of the deal they’ve had to do with the Sheriff of Nottingham to trade in the first place, using ‘zero-commission’ trading apps and services that rely on ’payment for order flow’. Small service providers – such as the Robinhood app many of the reddit activists were using – route their orders through to a larger provider, who can bundle those orders and execute them. The smaller service provider then receives a payment for rerouting their customers’ orders.

Why does that matter? Because in order to ‘win’ financially, the activists need to be able to eventually sell their GameStop shares at the height of their value. But hedge funds have access to share order data that retail investors don’t and so can react fractions-of-a-second quicker, selling their shares before a major sell-off sets in. There’s also the personal risk involved, too. With past shareholder activism, only a few shares were needed to gain a voice at the company’s AGM. In this new era, we’re witnessing large investments by individuals risking huge amounts of their savings.

So will this band of goodhearted outlaws win? Or will the Sheriff of Nottingham maintain the upper hand? Whatever the outcome, the furore has exposed the underlying problems and long-term loss in trust that the global financial crisis has caused. As such, the Sheriff would be well advised to listen to what the reddit activists are really telling the financial sector.



The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham.

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