Elliott Management Corp.’s recent campaign to oust the CEO of Southwest Airlines furnishes us with a rough measuring rod by which to judge just what activists can (and cannot) achieve. Among activists, Elliott is probably regarded as the hardest nosed and most aggressive (it is often described as a “bully” by its critics). At the outset, Elliott seemed determined to wage a blitzkrieg war, calling for a special meeting of Southwest shareholders on Dec. 10th and nominating a 10 director slate for a 15 director board that would give it an absolute majority. Elliott had purchased a nearly 11% stake in Southwest, and seemed unwilling to negotiate or even to discuss its plans with Southwest.

All this is atypical. Few activist funds can afford an 11% block of a major airline, and many do not want to cross the 10% threshold of Section 16(b) (of the Securities Exchange Act). Even fewer hide their plans from target management or investors, because they would normally prefer to settle than to conduct a costly proxy contest (particularly if the outcome was uncertain). Finally, activists rarely seek control of the board at the outset. More typically, they seek a three or four seat presence on the board. Why? Because other institutional investors may not want the activist to capture a majority of the board and thereby hold a controlling position. If control is to be sold, these institutions want to share in the control premium.