How to Outsmart Activist Investors
In light of the many recent activist interventions into corporations and executive boards, companies are becoming savvier about dealing with these situations. Preparation is critical. Is your company prepared to outsmart activist investors? Here are some strategies to address this possibility.
Have a Clear Strategic Focus and Stick to It
Transforming a business can take many years to show results, and in the meantime, may put pressure on the board and management. But if an organization stays aligned with their vision, the shareholders will see results through increased dividends. This gives them the confidence to stick to the plan and not waiver from aggressive offers by activist investors.
Analyze Your Business as an Activist Would
Make sure your board understands how activists think and have a plan in place for how to respond. Activist may try to increase the short-term value – raising risk for higher returns. Corporations can take preemptive measures by analyzing their situation and considering strategic acquisitions or selloffs.
Have Your External Advisors Lined Up in Advance and Familiar with Your Company
It’s important to have trusted external advisors ready to offer guidance, such as financial advisors and legal counsel. If they’re already well acquainted with the board and have their trust, the guidance they provide will instill the confidence needed to overcome the challenge of an activist investor.
Build Board Chemistry
Activist investors often attempt to divide and conquer a board, so having unity and cohesion among board members will offer some protection from this strategy. Board members grow closer and stronger through years of addressing critical issues, overcoming challenges together, and having regular conversations with the CEO.
Perform in the Short Run Against Declared Goals
The best protection from an activist investor is to consistently perform in line with the company’s agreed-upon goals. Lackluster performance or falling short of stated goals makes a company more vulnerable.
Don’t Dismiss Activist Ideas Out of Hand
Most of these investors are intelligent and motivated. They often see things that the company and board may be of overlooking. They may actually have suggestions or correct errors that will help the company grow and improve.
Doing What’s Best for all Your Shareholders
There may be major changes that are needed within the company however, allowing an outside activist without experience to come in and make those changes can cause problems. It can corrode the confidence and engagement of customers and employees. It’s important to have buy-in and full engagement from the board before moving forward with any changes.
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