Do not ignore activists during difficult times

Tracey Boles
Shareholder activists can be the catalyst for much-needed change at underperforming companies. (Source: Getty)

As profits warnings fly and share prices tank in the post referendum world, business leaders will need to work out how to steer their companies through some choppy waters ahead.

Boards will have to step up their game in terms of governance and strategy. And help may be at hand from what at first sight seems like an unlikely source: activist investors.

To a board, such investors may seem like a thorn in their side. On occasions, one can see why – a common activist ploy is to vote against an M&A deal, equivalent in the corporate world to a gun to the head.

In addition, high-profile activist US hedge funds run by the likes of Carl Icahn and Bill Ackman make them come across as noisy troublemakers, and some board members regard them as a distraction from getting on with the jobs they’ve been appointed to do.

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But as recent events at Rolls-Royce and Alliance Trust show, shareholder activists can be the catalyst for much-needed change at underperforming companies.

At Rolls-Royce, shareholder ValueAct pushed for a seat on the board in exchange for not calling for a break up of the aerospace giant, which has suffered a string of profit warnings. It adopted a behind-the-scenes approach in its stalking of the boardroom, with success.

Following the credit crunch, there was an increase in company engagement with activist investors because there was less money around. This is now likely to happen again as the UK heads for a period of economic uncertainty during what will presumably be the run up to Brexit.

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Often boards are reluctant to take what is effectively free advice from activists, but what is at stake is a company’s value.

Many boards have been too sleepy and insular for too long, lunching amongst themselves. The wake up call for non-executives is when remuneration is set to be hit – i.e. when it is too late.

So if an activist rings, board members should consider picking up the phone. It may help build trust, and even boost performance during an especially tough period.

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