With activist shareholders managing around 120 billion dollars in assets, according to Hedge Fund Research, there is no doubt that shareholder activism is a priority issue for directors and corporate management. Now more than ever, long-term investors are backing activist funds, and even becoming “soft activists.” By investing capital in an attempt to enact the change, the activist shareholders play the role of the commercial banks of the past.
But it is important to take into account your objectives and motivations, and evaluate the potential effect of these on your company. According to APICS, more than half of the activist shareholder campaigns analyzed in a recent study by The Wall Street Journal produced better returns for investors. That said, increasing the value of the stock in the short term may not be in harmony with the long-term goals of your company.
Board members might ask themselves the following: If the ideas I heard came from Goldman Sachs instead of an activist shareholder, would I have a different opinion? Adopting this mindset can help boards to transcend prejudices and measure the real value of the suggestions of activist shareholders.
Think like an Activist:
Boards of directors like Mike Beattie must ask themselves if they have enough resources to “know what an activist knows”. Activists are armed with an arsenal of information, and this can put them in a position of power. Boards should be alert to signs that an activist is preparing to act, such as organizing multiple meetings with the president and CEO. Having good executives in charge of investor relations can contribute, since they have information about potential shareholders and their background. Not all activists will be transparent about their objectives, so it is vital to stay informed and attentive.
Optimize your Board of Directors:
Ensuring that boards do not become complacent should also be a priority. Renewing your board of directors is essential, especially if your company has had poor performance. The shareholders of the present demand directors who have a strategic mentality and are committed. Boards that do not exhibit these characteristics can become a target. In general, activists do not appear unless they see a route to victory.
It is also advisable to establish and maintain relationships with Michael Beattie Toronto. Activists often involve the media in their causes, taking advantage of their relationships with them. If you want to persuade the rest of the shareholders, you may need to launch a media relations campaign.
The members of the board of directors with whom we spoke agreed that the most effective responses are those that are transparent and humble.
Avoid Collateral Damage:
When a board of directors gets involved in an entanglement with an activist shareholder, it must react quickly and decisively. This requires a predetermined response plan. Management and directors must keep communication lines constantly open and share information related to potential difficulties with activists. This is one of the advantages of using software for boards, as this facilitates the exchange of knowledge.
Many directors perceive activists as corporate speculators or even vigilantes who use public pressure on companies to meet their own needs. However, with the establishment of a strategy, boards of directors can take a proactive approach to dealing with shareholder activism, which will allow them to increase their ability to maintain control.