The FD’s FD: be active on activism

One recent broadsheet article, however, covered the topic under the headline
‘Activism grows in wake of credit crunch’.

Our own survey of investor relations leaders confirms this. Two thirds have
seen an increase in investor activism as a result of the credit crunch. But what
does this mean for listed companies and for the CFOs who lead them?

The research suggests that on average, executives now spend around one-fifth
of their time on ‘normal’ investor relations activity, and this is increasing.
This is clearly a significant burden and one which is ever more difficult to
balance with the ‘day job’ of running the company.

What can be done to ensure that the needs and concerns of increasingly
diverse and short-termist investors are addressed, and at the same time making
sure that responding to enquires and suggestions from activists does not
distract from delivering on longer term, strategic objectives?

As hackneyed as it sounds, proper planning is key. In much the same way that
listed businesses often prepare a bid defence plan, preparation for defending
against activists is worth considering.

Surprisingly, however, few quoted companies have put the time and effort
needed into the analysis, reflection and thought required to prepare such a
document. Our findings suggest that barely one-third have actually taken the
necessary steps.

In many cases, this lack of preparedness is due to the perception that no
threat is imminent. In others, the topic has not even reached the boardroom. The
consequences of failing to consider where you are vulnerable, what you can do to
strengthen your defences, or how you can change, can be significant both for the
company and for management. You only need to pick up a broadsheet to see
headlines such as ‘CEO forced to resign’ or ‘investors revolt’.

So where to begin? There are a number of areas that typically concern
activists: financing structure; portfolio strategy; corporate governance; and
executive remuneration. Begin by looking at these, through the lenses of an
activist driven to produce short-term gains and you will have your starting
point. But take care, shareholder interests are diverse and often mutually
exclusive ­ don’t let activists distract you from managing the business with
longer-term value in mind.

Margaret Ewing is partner and vice-chairman of Deloitte.
She formerly served as CFO of BAA

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