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Think Like an Activist Investor to Stay Competitive

by Guest Writter
Amanda Setili, President, Setili & Associates

In the past year, activist investors forced the resignations of the CEOs of General Electric, AIG, Arconic, CSX, Pandora, and Buffalo Wild Wings. Even when the CEO was spared, companies spent millions of dollars and weeks of valuable management time fighting proxy battles.

How can your company avoid this fate? The best strategy is to keep operating at peak performance. Here are five rules to follow to keep your shareholders happy (and activist investors at bay).

1. Snuff out excessive bureaucracy.

During the proxy battle with P&G management, Trian’s Nelson Peltz made his pitch to institutional investors: The world has changed, and P&G has not changed with it. The company suffered from “suffocating bureaucracy” and short-term thinking, Peltz said. It had aging brands and little innovation, and was closed-minded and insular. After an expensive proxy battle, Peltz won a board seat and will bring about many of the changes he advocated for.

The lesson: Chances are, what made you successful yesterday won’t today. Don’t let bureaucratic practices keep you from adapting to meet new marketplace needs.   

2. Remember: numbers speak louder than strategy stories.

Former GE CEO Jeff Immelt spoke frequently about a key element of GE’s strategy: establishing the company’s Predix platform as the backbone of the industrial Internet of Things. Activist investor Nelson Peltz of Trian didn’t think Immelt’s story held water, given disappointing financial and share price results.  He brought about Immelt’s resignation and the installation of GE’s new CEO, John L. Flannery, who will reduce cost and spin off or sell off non-core parts of the company.

The lesson:  Make sure your strategy delivers the hard numbers that investors demand.

3. When activist investors speak, it’s often pays to listen.

When Third Point hedge fund’s Dan Loeb pressured Honeywell to shed its aerospace business, Honeywell’s management team instead decided to keep the aerospace business, but spin off the car parts and home systems businesses. The spin-off created two best-in-class companies that were better off independent.

The lesson: Implement the best of the activist investor’s recommendations, and you may find that you can improve performance and retain control of your company.

4.  Don’t let too may assets weigh you down.

When activist investor Mick McGuire of Marcato Capital recommended that Buffalo Wild Wings improve returns and speed up growth by franchising, rather than owning, its restaurants, internal managers pushed back.

Marcato ultimately won three of the board seats it sought and pushed out Buffalo Wild Wings CEO Sally Smith. Five months later, in November, Roark Capital, a private equity firm with deep expertise in franchising, announced that it would acquire Buffalo Wild Wings.

The lesson: To keep activist investors at bay, use franchising and other forms of partnerships to improve growth and profitability.

5. Keep a sharp watch on cost and efficiency. Sometimes tough choices must be made.

Bill Ackman of Pershing Square Capital went after ADP in 2017 by pointing out that ADP’s labor productivity was 28 percent worse than its competitors. He lost his bid for board seats, but only after causing a high-profile proxy fight.

The lesson: Be bold in keeping costs competitive, even if that requires difficult restructuring.

The bottom line: 

Proxy fights are expensive, distracting, and unpleasant, so make the needed changes in your business before an activist investor forces you to—or, for that matter, before competitors or market disruptors put your business at risk.


About the Author

Amanda Setili, author of Fearless Growth: The New Rules to Stay Competitive, Foster Innovation, and Dominate Your Markets, is president of strategy consulting firm Setili & Associates. To learn more, please visit www.setiliconsulting.com.

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