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.