Some of the most combative shareholders are deploying the most powerful weapon possible – sound advice.
Every business leader fears getting a certain kind of letter. It comes from an activist shareholder who has acquired at least 5 percent of the company’s stock and wants to have a meeting. You can’t just tell the investor to take a hike; that might lead to a battle to take over the company’s board and C-suite. And anyone who doesn’t want to hear what he has in mind should rethink that idea. We are living in a time when an activist just might have some good ideas for an operational overhaul- even if the advice is painful to hear.
Activism as we know it dates back to the 1980s- and 1990s- era private equity masters of the universe who relied on financial engineering, with their eye on short-term gains. The grandfather of shareholder activism, Carl Icahn, is still out there railing for stock buybacks reminiscent of his days as a corporate raider in the 1980s. But Icahn also owns or controls 11 companies that he’s trying to fix. When the private equity crowd found there were limits to financial engineering (for one thing, companies started doing it on their own), they began to focus on operational excellence.
Hedge funds and other shareholder activists have taken cues from the private equity playbook. Some of the more noteworthy examples of successful shareholder activism have been episodes in which the activist arrived intent on overhauling the operations of the company in ways that would boost its long-term value.