by Henry Stoever for National Association for Corporate Directors, March 16th, 2011.
After a two-year slumber brought on by the financial crisis, activist investors have suddenly awakened. The resurgence is driven in part by the sudden emergence of U.S. private equity firms as activist investors. This change in the corporate climate means that publicly traded companies must position themselves so that they do not become targets of these investors.
How can this be done? The answer is for directors to proactively engage these investors, thereby maintaining open lines of communications and building good will. This means that boards need to take into account the concerns these activist investors raise over a company’s stock performance, governance practices and perceived weaknesses in the business operation. In so doing, directors are better situated to thwart adversarial actions and “staged” revolts by certain activist investors.
After all, activist investors can have a profound impact on the overall composition and direction of a board. For starters, activist investors bent on driving the agenda of a company can attempt to pick up seats on corporate boards of directors. These investors can also wage public battles that tarnish a company’s image—accusing directors of everything from conflicts of interests to lax governance practices. (continue reading… )