Thinking like an activist

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Shareholder activists are becoming increasingly sophisticated in their approach to companies, says Ian Robertson, vice president of communications at Kingsdale Shareholder Services.

‘Gone are the days when young graduates from the top business schools wanted to work on Wall Street at the big banks – they now all want to be an activist,’ he says. What that means is that a lot of innovative, top-level talent is being attracted to activist funds.

One of the changing trends in shareholder activism is that activists are taking an increasingly thoughtful approach and putting in more research – but they're also seeking more constructive engagement, he adds.

For IR professionals, this raises some good questions about how you manage that engagement. ‘Is it the same knee-jerk defensive action you go to or is there another approach you should take?’ asks Robertson.

He offers some tips on how to be prepared against an activist investor:

Know who your shareholders are: ‘Keep an eye out for funds that have a predisposition to activist actions to understand how you can proactively manage them in advance’

Engage with your shareholders: ‘Shareholders don’t want to hear from you just when times are good. They want to be confident that you’re on top of things when times are bad, which is often when CEOs and directors don’t want to have to answer the tough questions’

Ask difficult questions: ‘For example, where do we rank against our competitors? Are there innovations in terms of the operations that we should be considering? What are the best-in-class peers doing that we should be looking at? These are the things that activists will be looking at. Even if your share price is generally in line with your peers, if there are other levers that can be pulled to create value, an activist will identify those.’

Get down to the details: ‘The famous example of course is Olive Garden,’ when Jeff Smith of Starboard Value presented an almost 300-page report that included recommendations on breadsticks and sauce recipes.

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