The study analyzed 71 campaigns by activists and activist investors such as Nelson Peltz, whose company Trian Fund Management is among the top ten shareholders of General Electric Co., and William Ackman, who, through Pershing Square Capital Management, invests in JC Penney.
This means that the boards of directors like Michael Beattie Construction must ensure that they are prepared to handle activist shareholders should they come face to face with one of them unexpectedly. According to a survey conducted by Deloitte, nearly three-quarters of the financial directors of listed companies have experienced shareholder activism.
Recently, Diligent invited about 40 board members to discuss the issue of activist shareholders in a multi-panel event. These are some of our findings, as well as how this unique information can be applied to your board of directors.
Activism is here to stay:
With activist shareholders like Mike Beattie who are 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.
Think like an Activist:
Boards of directors like Michael Beattie Toronto 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. 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 journalists. 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. Last summer, an altercation between representatives of Ultratech, Inc. and Neuberger Berman Group, led Ultratech to publish a statement in an attempt to “clarify the numerous errors and false claims of Neuberger Berman.” He exhibited a lot of evidence to defend his arguments.
The members of the board of directors, with whom we spoke agreed that the most effective responses are those that are transparent and humble.