It’s no secret that activist investing is on the rise. Forbes even talks about a “golden age” of activist investing, while the Financial Times points to the next generation as a new wave entering the mainstream. But for CEO’s and management teams, activist investors have been lurking in the shadows since the 1980’s. Whether out for profit, a cause, or both, they are here to stay.
The question is how can a CEO make sure that they see it coming, and make sure that when it happens they know how to respond? Are there benefits to activist shareholders? Or is it always a form of sinister takeover that every CEO needs to be on guard for at all times?
Here are 5 things every CEO needs to keep in mind when an activist investor (or 10) comes into your orbit:
1. Think Like an Activist
Just like teams need to think like customers to build good products, CEO’s need to take a minute to think like activists. Take note of what issues are hot in the world right now, and especially track the ones that overlap with your customers and products.
What is taking up space in the columns of newspapers and blogs that investors are reading? What political trends are motivating the news? Let the trends and the media be part of your early warning system. Activist investors will like to be heard, and there’s a good chance their concerns or issues will pop up on your radar in advance — if you’re paying attention.
2. Keep Your Board Close
We talk about this a lot at our office, and it’s one of the core reasons why we started our company. CEOs who have great relationships with their board directors are able to respond with agility, power, and grace in the face of the unexpected. It’s literally why we built Cloud Concinnity®, so that management has a pipeline to build the habit of touching base with their board all the time.
This is especially true with activist investors. When one comes out of nowhere — or even when you see them coming — you want your board of directors informed, on your side, and communicating. That kind of support needs to be cultivated over time and be something you start doing in the good times, not when the crisis has already hit and the game is on.
3. Do they have a point?
Sometimes activist investors have a point, and it’s worth truly listening to what they have to say. For example, the CalSTRS fund is taking an activist position in pushing Apple to add better parental controls to iPhones. BlackRock is creating a new fund to target companies around climate change and wage issues.
For CEOs, the takeaway is that activist investors can often be speaking for a growing public opinion that otherwise wouldn’t find its way into the boardroom. Ebay is learning from and reacting to activist investors as we speak – and the result is dividend payments and more corporate stock buybacks. Papa John’s has made a “white squire” activist investor their new chairman. When you have a moment, listen. Cultivating wisdom is one of our best practice imperatives – and wisdom comes in all different shapes and sizes. Don’t take an automatically defensive position.
4. It’s Not a battle, it’s a conversation
As activist investing grows more and more common, it also grows more diversified. Not every activist investing group will be as combative as the traditional “corporate raider.” Activist funds will care as much as anyone about stock price and won’t want anything to tank. Some activist investors will want a big change – some just want a seat at the table.
As the Harvard Business Review points out, “A manager who understands that activists really only have power when they have a lever to persuade other shareholders should engage early to learn whether the activists’ concerns resonate with the rest of the shareholder base.” In any case, approaching activist investors from a standpoint of acquiring knowledge and learning from them rather than treating them as an enemy is savvy and easier.
5. Have a Plan in Place
Regardless of how you feel about them, having a plan in place for activist investors is key. First, you need to have a way to monitor investors in your company that you are reviewing regularly. PepsiCo survived and thrived through an activist intrusion largely due to their CEO being ready for it. Our CEO, Nancy Falls, did this with the help of valuable shareholder consultants back in her days of managing investor relations. At a minimum, using a spreadsheet to track publicly available information on investors is a starting point for cultivating this kind of awareness.
Cultivating a process for shared analysis that all board members look at periodically is something we encourage our clients to do in Cloud Concinnity – being prepared is one of the imperatives we teach as a Concinnity framework best practice. The form is not important – the habit and the practice will save you from that surprise phone call.
The Concinnity Company™ provides boards and c-suites with technology and best practices. Cloud Concinnity® is the world’s first integrated board intelligence and management platform. To learn more about how Cloud Concinnity can help CEOs get an edge, visit us here.
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