Gadfly

Gadfly is a colloquial term for an investor who attends the annual shareholders meeting to criticize the corporation's executives. A gadfly addresses many issues for the shareholders, often raising questions to management about specific company policies or corporate governance.

Named after small insects that bite and annoy livestock, the gadfly looks to irritate a corporation's management until it acts or compromises on shareholder concerns. Questions regarding executive compensation or inconvenient annual general meeting locations are often brought to light by a gadfly. A gadfly adds value for other shareholders by vocalizing his concerns and inciting action. Such investors are activist shareholders who advocate for changes in corporate governance by offering proposals for votes at annual meetings. Proposals offered by shareholders must be placed on the agenda and offered up for a vote at the next annual shareholders' meeting. Because most proposals raise issues company management tend to avoid, they often trigger a confrontation, forcing management to urge the shareholder base to vote it down or act on a compromise. Most proposals center on environmental concerns, social responsibility, corporate political spending or lobbying, executive compensation, proxy access, 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, gadflies are stockholders who have held a minimum of $2,000 in a company’s equity for at least one year.

Proponents of shareholder activism contend corporate gadflies are at the heart of a rising shareholder democracy that focuses attention on key issues that would otherwise remain obscured. Gadflies play a key role in empowering small investors against corporate managers who may not be acting in their best interests. Most gadflies tend to focus on issues of a religious, public policy or social investing nature, but issues centering on corporate governance policies, such as executive compensation, are more likely to gain traction with voting shareholders.

In 2016, there were about 1,000 shareholder proposals filed in the United States, of which about 400 were on social and environmental issues. Another popular topic in 2016 was reporting on and managing risks related to climate change, which accounted for votes on more than 175 resolutions. A growing focus for gadflies is on the issue of board diversity, coupled with a study by Credit Suisse showing that companies with at least one woman on their boards outperformed those with none by nearly 40 percent between 2006 and 2016.

Critics of shareholder activism point to the enormous cost incurred by companies to respond to shareholder proposals. The critics state that the cost that companies bear to deal with gadfly proposals is $87,000. The contention among some critics is a number of individual activists are acting on behalf of labor unions in an effort to demonstrate shareholder populism for union issues. Although institutions such as pension funds are active in submitting shareholder proposals, in 2014 and 2015, the largest number of proposals has been concentrated among a small group of individuals who may be motivated by personal interests. Together, John Chevedden, William Steiner and James McRitchie were responsible for one-third of shareholder proposals introduced through mid-2015.