With a growing number of Canadian shareholders eager to have their say in the companies they control, shareholder activism is a growing trend. A full audience of industry members gathered in Toronto on Tuesday to hear Eric Rosenfeld, president and CEO of Crescendo Partners L.P., a New York-based investment firm, speak about this hot topic.

Having sat on the board of 16 companies — five for which he was chairman — Rosenfeld has extensive experience leading corporate turnarounds and restructuring programs.

Activist shareholders typically target companies with a value gap — companies whose shares are failing to reach their full potential — and initiate the necessary measures to boost shareholder value.

From time to time, shareholders, employees or even companies themselves approach shareholder activists, seeking help in adding value, Rosenfeld said.

Offering advice to companies who wish to avoid being a takeover target, however, Rosenfeld said the best thing they can do is to “close the value gap themselves.” This can involve instituting dividends, ensuring management is executing well, and taking the time to get to know their shareholders, Rosenfeld said.

“If management closes that value gap, then there’s nothing for activists to do,” he said.

Summarizing the differences between activism in Canada and the U.S., Rosenfeld said Canada provides a much better regulatory environment.

“It’s really a much more extensive democracy in capital markets,” he said. “ Shareholders get to decide what happens with the company.”

In the U.S., the system of staggered boards makes it much more difficult for shareholders to takeover a board of directors since only a few directors are elected at a time. “You have to be very persistent to get control of a company [in the U.S.],” Rosenfeld said.

Canada has its negative characteristics, too, Rosenfeld pointed out. Illiquidity, for instance, forces shareholder activists to be patient in waiting for returns.

Patience, however, is something all activist shareholders need. Rosenfeld said any type of corporate turnaround takes time, so investors can’t expect significant returns within a quarter or two.

“You can’t turn companies around immediately, it just doesn’t work that way,” he said.

Touching on the credit crunch, Rosenfeld said that despite the challenges it has presented in recent months, the credit crunch has actually brought some good news in the form of buying opportunities.

“It affects us, obviously, but it’s also created some opportunities by making some stocks very cheap,” he said.

Although times are tough for investors, Rosenfeld expects things to improve. “Two years from now, things will probably be better.”

IE