David Brancaccio: The CEO of Yahoo, Scott Thompson, has abruptly resigned. This development is the work of what many call an 'activist' investor, a hedge fund manager who pushed for Thompson's ouster after calling attention to Thompson's fudged resume. That same investor, Dan Loeb, helped edge out Thompson's predecessor as well. So, just what is activist investing?

Marketplace's Gregory Warner explains.

Gregory Warner: Like any investors, activist hedge funds invest in companies that are undervalued. The activists want to suggest how to fix what's wrong.

Duke University professor Alon Brav says target companies of activists aren't in distress, they're just a little lost.

Alon Brav: These are firms that a year or two prior to the activism were doing quite well. It's just that they've been running out of growth opportunities, they're sitting on a lot of cash and don't use it wisely and the activist comes along and says 'wait a second, don't do that.'

Brav says hedge fund activists may call for a change of product, like new ketchup dispensers at Heinz. Or a change of governance, like a new CEO at Yahoo.

Jeff Morgan is the head of NIRI, an association for the people that help companies deal with activist investors. He says it usually happens behind the scenes.

Jeff Morgan: You know in a case like Yahoo where it's much more public, most activist investors that is not their end goal is to have a public display because it costs them money too.

In the case of Yahoo, activist investor Dan Loeb now has three spots on the board of directors. And his suggested candidate is interim CEO.

I'm Gregory Warner for Marketplace.