Activist Investors: How your company board can prepare for them

Activist investors - cfamedia

Wolves, often attack their prey, by first, carefully stalking them and checking out for any signs of weakness to exploit, before laying a wholesome attack that, the prey will have no chance of escaping from.

This is exactly how Activist investors operate.

They, basically, buy stocks that, they envisage does not have enough value and pressurize, or, literally, arm-twists the management, to put in some measures that, will up the value, which may entail shedding divisions that they think are driving down the stock price.

In 2018, there was a massive upsurge of activist investor activities, as a record number of companies were targeted and a record number of board seats won.

There was also a rising bench of first-time activists, as never before.

When Activists targets individual directors, they will carry out wholesome research and utilize all current and historical negative press, statistics and data, that is publicly available, whether, or, not, it is accurate, comprehensive, or, fair.

Companies must, therefore, not only be prepared for a potential onslaught by activist investors but, also, act strategically and decisively, in the event of such an assault.

Below are 4 ways to prepare for the imminent onslaught by Activist Investors”

Be Prepared: Ensure that you carry out a periodic evaluation of the company’s performance and check for weak links, as well as, loopholes that activist investors can latch on to and exploit.

Critically evaluate operational performance, business strategy, balance sheet and so on. Honestly assess what can and should be done, to improve in weak areas.

Think Like An Activist: Thinking like activists ensure that, you are ahead of them.

Ensure that your board understands major tactics employed by activist investors and have a well-detailed game plan for countering and responding to it.

That means, analysing how the activists might try to increase short-term shareholder value by, stock buyback and increased debt, or, through a spin-off.

Establish An Activist Response Team: Establish an ‘‘activist response team,’’ consisting of the most knowledgeable individual people that have been there and have adequate experience, in handling issues, such as this.

Ensure that, the team is composed of the Chief Financial Officer, general counsel and additional senior personnel, from the Finance, Investor Relations and Correct Corporate Communications departments and the Lead Board Director.

Good Working Relationship With The Board: Build a good working relationship with the board, through repeated engagement on important issues, weathering crises together and candid dialogue.

There should be a high degree of transparency from the CEO and a willingness to share, even, the most sensitive information involved, in decision making