Idea in Brief

The Tension

Institutional investors have become a vocal constituency, pressing the board to act in ways that will ensure the company’s long-term survival. At the same time, directors cannot ignore the interests of activist investors who seek short-term wins.

The Opportunity

By meeting regularly with big shareholders, board members can gain valuable information about the company and its competitors and build alliances to help defend against activist attacks.

The Way to Engage

The board should be transparent about its approach to talent, strategy, risk, and oversight of management. It should leave financial disclosures to the CEO but encourage open dialogue with investors—including activists, whose analytical rigor can be useful regardless of their goals.

Index funds and other long-term investors are no longer a silent majority of shareholders. They have become a vocal constituency, asking boards to resist short-term pressures and act in ways that will ensure the perpetuity of their companies. This development gives boards an opportunity to help shift the center of gravity toward long-term thinking—something that many management teams, academic experts, and public policy makers advocate.

A version of this article appeared in the July–August 2021 issue of Harvard Business Review.