Keeping Activist Investors Away

Ways to keep activist investors away include boosting performance, improving capital allocation and strengthening your competitive edge.

4. Separate Unrelated Businesses: Is management distracted by trying to run too many different kinds of businesses? Are smaller, fast-growing business areas stifled and investing less than they would as stand-alone companies? Management should separate unrelated parts of the business via spinoffs or divestitures. Conglomerates tend to grow slower and be valued lower than focused companies and, therefore, often attract activist attention.

5. Strengthen Corporate Governance: Do your incentives motivate managers to think and act like owners? Do they treat the capital of the company as they do their own money? Have executives been overpaid relative to the performance they have delivered? Activists will rarely enter a stock just because of poor governance, but egregious compensation and other governance weaknesses can support their case among other investors and the public.

To successfully serve as your own activist, you must objectively assess your company’s strengths and weaknesses and diligently pursue improvement opportunities. This can be tough especially when a CEO or CFO decides to impose unwanted change on friends and colleagues. If you are such a friend or colleague, remember it is probably better to take action yourself than to have your hand forced publicly by an activist.

Gregory V. Milano, a regular CFO columnist, is the co-founder and chief executive officer of Fortuna Advisors LLC, a value-based strategic advisory firm.  Copyright © Fortuna Advisors LLC.  All rights reserved.

2 thoughts on “Keeping Activist Investors Away

  1. “Unfortunately, many companies are not run as well as they should be, which allows activists to find companies with performance problems, inadequate valuations and governance troubles.”

    ” It should be much easier for management to drive these kinds of successes from the inside.”

    “Activists complain about deteriorating competitive advantages, weak revenue growth, declining profit margins and/or eroding returns on capital.”

    “To keep activists away, you must be your own activist!”

    “To successfully serve as your own activist, you must objectively assess your company’s strengths and weaknesses and diligently pursue improvement opportunities.”

    Most large corporations and conglomerates realize that centralized command and control is both unwieldy and undesirable because it cripples organizations’ ability to respond quickly to a changing environment and to make fast and effective decisions.

    With better tools and data, large corporations can better understand their workforce to align their corporate culture and subcultures at every level of the organization with their goals and strategy to drive innovation and improve performance.

    Businesses succeed at the intersection of employees, customers and suppliers. Regardless of the size of the organization, there are ten (10) common process steps to strategy execution:

    Step 1: Visualize the strategy.
    Step 2: Communicate strategy.
    Step 3: Identify strategic projects.
    Step 4: Align projects with strategy.
    Step 5: Align individual roles and provide incentives.
    Step 6: Manage projects.
    Step 7: Make decisions aligned with strategy.
    Step 8: Measure the strategy.
    Step 9: Report progress.
    Step 10: Reward performance.

    Large corporations and conglomerates have ended up with multiple sources of policy, training, surveys, assessments and issue reporting hotlines, including:

    1) Internal and external data analytics
    2) Effective policy management (utilizing an online policy library)
    3) Ongoing culture assessment surveys
    4) Performance Scorecards (hard & soft metrics)
    5) Event management and reporting
    6) Annual certifications to the Code of Conduct

    With better tools and data, leadership can acquire the actionable intelligence they need to implement and maintain an innovative, high performance culture by aligning individual roles at every level of the organization with corporate goals and strategy to drive innovation and improve performance.

    The challenge for leadership is to design and implement a framework for making event-based decisions in a timely manner. There are more great business ideas out there than great businesses. The difference is in the people, the execution and the timing.

    For the sake of investors, employees, customers and suppliers – ” be your own activist!”

  2. Pre-requisite to all steps above:
    Be diligent in understanding the condition of fixed assets, people, and practices within your company from bottom up, integrated with the top down view. Top down assessments fatigue before they get to the real details. Activists never do.


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