While the term “shareholder activist” can send a shiver down the spines of corporate directors, there are often positive outcomes from this activity. Janet F. Clark, former executive vice president and CFO, Marathon Oil Corp. and director, Dell, YES Prep Public Schools, Teach for America; Darren Novak, senior vice president, Houlihan Lokey; Brian L. Schorr, chief legal officer and partner, Trian Fund Management; and Andrew E. Shapiro, president, Lawndale Capital Management discuss how and why activist shareholders can be a force for good.
Shareholder activists can take on many forms, and Schorr said activists typically fall into four broad categories: merger and acquisition activism, balance sheet activism, governance activism, and income statement/operational activism—which is the key analysis of his firm. “We want to create long-term shareholder value by focusing on the balance sheet, working closely with management and boards,” he said.
Behind the Scenes Activism
While activists are often making headlines in the media, Shapiro was quick to note the value in trying to engage with a company before going public. “Activism is inherently disruptive and can be costly to stakeholders, directors, and management—and even to activist investors,” Shapiro said. “There is great value in trying to engage with the board and management to resolve issues and determine irreconcilable differences.”
Schorr noted that his firm generally attempts to set up a meeting with the CEO and often a representative from the board to present strategic ideas before going public. “Our goal is to have a voice in the boardroom and persuade the board [that] there might be a different strategy they haven’t considered,” he said.
Activists at the Table
If a board and management are doing their jobs—actively testing strategies, looking at metrics and peer performance, and seeking improvement to increase firm value—they won’t get a knock on the door from activists, Clark said.
If, however, that knock does come, it should not be completely jarring to the company. “If a board is approached by [an] activist with an idea management hasn’t pursued, the activist is doing a positive thing. Management shouldn’t be surprised by concept,” Clark said.
What sets great companies apart? Executives and directors at the most admired corporations in the world call it strong corporate “culture.” That means everyone–employees, investors, business partners–embraces the same values and principles. They share a unified sense of how success is identified, and of the kind of impact the company should have.
Culture, thus defined, is essential to marketplace success.
At the management level, executives should exemplify the culture through both actions and words. Although directors are not typically viewed as arbiters of corporate culture, in fact, leading boards also exemplify and demonstrate those shared values.
As boards and individual directors help set the “tone at the top,” they influence how the company is perceived by investors, regulators and other stakeholders, thus significantly impacting the company’s performance, reputation and value.
Four veteran directors from leading global companies will join a panel discussion at the upcoming 2012 NACD Board Leadership Conference to talk about the vital role directors play in establishing a culture that motivates the workplace:
Seth Goldman, president and TeaEO of Honest Tea, provides keen insights into how he created a company now viewed as a beverage industry innovator–and how leaders can imbue their organizations with a spirit of just such innovation.
Robert Hotz is a senior managing director and co-chairman of Houlihan Lokey. He is also the global co-head of corporate finance and a member of the board of directors and operating committee. Hotz serves on the board of directors of Universal Health Services and is chairman of the board of Pep Boys.
Ralph Sorenson is managing general partner of the Sorenson Limited Partnership. He is also president emeritus of Babson College, professor emeritus and former dean of the University of Colorado Business School, and former professor at the Harvard Business School. Dr. Sorenson serves on the board of Whole Foods Market, where he chairs the nominating and governance committee.