Executive Summary
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Organizations not previously of interest to activist investors or hedge funds should prepare to be targeted.
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Be proactive in understanding why investors become agitators, and address their concerns before they escalate.
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Organizational governance—particularly the combined chairman/CEO position—and financial management will be the easiest targets for activists.
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Activists often succeed because they communicate better than management—particularly to tagalong investors who become part of the proxy fight.
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Unlocking stockholder value and simultaneously developing and executing on a long-term strategy will give activists less reason to agitate and less success with tagalongs; executive management will then have a less volatile financial landscape within which to work.
Introduction
Whether or not your organization has been a target in the past for activist investors and fund managers, you have to plan on it becoming a fact of life from now on—things have changed.
It used to be that only a few organizations were hit by activist investor activity. From the almost prophetic, and beautifully constructed, Benjamin Graham move on Northern Pipeline in 1951, to Carl Icahn’s dramatic moves on Yahoo! during the “Microhoo” (Microsoft–Yahoo!) debacle of 2008, activist investors were a rarity—something other organizations had to deal with. A problem for the really Big Boys. Not everyone else. Not you.
Not any longer.
Whether or not you have any known activist investors currently rearing their heads, you’ll have to plan for when they show up—because they will. If you work it right, proactively, as well as when the activism hits, you’ll manage your way through those very choppy waters and find a safe haven at the end.
Why Investors Become Activist
Historically, the reason that most activist investors became active was because they saw something wrong with the way things were being managed. The value of the company was not fully represented in the share value. Management was taking the organization in a direction—usually with a direct correlation to falling share value or dividends—that was making the investors unhappy.
But those reasons are historical, and they were retrospective. One of the big changes is that now investors become activists proactively. They see things on the horizon that they don’t like, and they act accordingly. Not only may they not be happy with what has happened in the past, they’re also not happy about what they see coming next.
For management, that is a wake-up call in the best possible way. It puts the onus on you to look at those components of your business that might lead investors to become activist—and take action accordingly. Because if they’re seeing something they don’t like, either they need to understand why it is the right thing for the business to do, or you need to take a different, objective, look at what they’re not liking so that you can determine the relative merit of what they see.
Also, by looking at the organization the way the activists do, you will see other weaknesses—in everything from your strategy, to your operations, to your financial management—that might be the next focus of their attention. You don’t want that; you want to make the fix before they ever have the chance to raise their voices.
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