What a twist! An activist investment fund, Starboard Value, has recently been pushing Pfizer (PFE 1.89%) to increase shareholder value. Though they initially supported its campaign, Pfizer's former chief executive officer and chief financial officer both made a late-night about-face on Oct. 9, publicly pledging instead to support the current CEO, Albert Bourla. Now, Starboard's $1 billion stake in the limping pharma juggernaut may mean it has to take a more adversarial approach to getting the changes it wants.

Will this clash between a major shareholder and management, current and former, harm the stock? Or is the situation merely an awkward and public miscommunication between actors with aligned interests?

Nothing tangible was lost here

Let's keep this most recent development in perspective. While it's true that Pfizer's stock dropped by about 2.5% on the news of the former leaders throwing their lot in with the reigning management team, that pullback essentially mirrors the boost the shares got when Starboard Value announced its stake. So the immediate impact to the stock is negligible.

Starboard still hasn't formally announced any of its proposals for Pfizer, but there are a few issues it mentioned. Specifically, it has implied that Pfizer spent a bit too profligately on acquisitions recently, perhaps referring to its purchase of the oncology drug developer Seagen in 2023 for $43 billion in cash. It's also likely that Starboard isn't thrilled about the worse-than-anticipated financial performance of some new medicines, like a respiratory syncytial virus (RSV) vaccine, or about research and development (R&D) issues, like the relatively weak clinical-stage data produced by Pfizer's program for treating obesity.

With that said, it's now clear that the activist investor's bid is much less likely to be a tailwind for the stock. It might even become a minor headwind.

Just a few days ago, the activist's stake represented an opportunity for Pfizer to get a fresh perspective on how to address poor returns for shareholders in recent years -- likely by realizing certain efficiencies, or implementing a slightly different pipeline strategy. Now, it represents a potential conflict of governance.

Furthermore, as the former CEO and CFO changed their support of the activist's campaign overnight, there's now likely to be some kind of investigation from the board of directors to determine the degree of their support and their rationale for it. Starboard Value is alleging that the board may have leaned on the former leaders so they would voice their support of the current CEO, which could imply more conflict in the future.

However, as Starboard is unlikely to control enough shares to mount a successful campaign to replace management, the actual level of disruption to Pfizer's operations will probably be zero.

Public squabbling isn't a good look

The whiff of a conflict between a group of shareholders and management is now undeniable, and it may begin to create unflattering narratives about Pfizer.

It simply doesn't look good when a business needs to wrangle its senior alumni to shore up support for management during a period of less-than-ideal performance, especially when activist shareholders are coming forward to try to improve things. After all, one reason that the former executives were interested in helping Starboard is that they themselves are also major shareholders.

Now it may be more difficult to convince shareholders at large that there's a united front in establishing a fresh strategy, one that could lead to better growth in shareholder value. In a nutshell, this twist represents a new risk to shareholders. The more contentious the spat gets, the bigger the risk that it could cause actual enduring harm to Pfizer's stock. For now, that risk seems low, but it will likely grow or shrink quite soon.

Starboard Value and Pfizer's management -- perhaps including the board -- are scheduled to meet on Oct. 16. So stay tuned.