It was “Activism Week in Chicago,” or at least that’s what I dubbed it. Over a few consecutive days in September, Peter May, President & Founding Partner, Trian Partners, Scott Ostfeld, Partner and Co-Portfolio Manager, JANA Strategic Investments and Mario J. Gabelli, CFA, Chairman and Chief Executive Officer, GAMCO Investors, Inc., spoke about their investment strategies at different events in Chicago.
I saw the first two speak and what struck me is that while each may have their own distinct approach, they are alike in describing themselves as highly-engaged owners. So, what does that mean? In my view, highly engaged owners:
- Want to have a say in the business and to shape its destiny
- Will hold the board and management team accountable
- Will do a ton of research on the company and industry, more than many other investors
- Will have multi-year investment horizon and will stay in a stock until they achieve a targeted return, which could be years.
With the number of activist campaigns expected to exceed 300 in 2017, what’s a company to do? Some thoughts include:
- Continuously monitor, and regularly inform the board of, investor sentiment
- Ensure activism risk is part of your overall risk assessment process and know how you can defend against your activism risks
- Be open to dialogue and remember you’re dealing with humans on the other side of the table
- Consider having a confidentiality or non-disclosure agreement with the activist to facilitate dialogue. This may be an opportunity to set ground rules
- Build relationships with index funds and proxy advisory firms before you need them. Index funds can be a bulwark against short-termism
- Know your strengths and weaknesses vis-a-vis the competitive environment; don’t be caught off guard by how much the activists may know
- Don’t over promise during an activism campaign. This may put you at risk for future campaigns.
NIRI-Chicago’s annual investor relations workshop focused on activism and its defense. You can find summaries of the program on its website.