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4 Things CEOs Need to Know about Activist Investors

By Alicia Croke

    Wed, Sep 6, 2017 @ 09:00 AM Strategy Execution

    The term activist investor has been floating around Bloomberg and the Wall Street Journal for a while now. What CEOs need to know about activist investorsActivist investors are turning up the heat in companies all over the market, including Saks Fifth Avenue and Buffalo Wild Wings. What exactly is an activist investor? What do they do and how do they impact your business?

    According to Investopedia, "An activist investor is an individual or group that purchases large numbers of a public company's shares and/or tries to obtain seats on the company's board with the goal of effecting a major change in the company." 

    Now that you know what an activist investor is, how can they affect your company? Below are 4 things every CEO needs to know about activist investors. 

    1. They can affect your corporate structure

    Activist investors invest to see and drive change in your organization. One impactful way they do this is by changing out roles and people. According to an article in the Harvard Business Review"With increasing frequency they get deeply involved in governance—demanding board seats, replacing CEOs, and advocating specific business strategies." 

    2. Activist investors force fast change

    Activist investors do not sit back and idly watch their investments. They are hands on in every sense of the word. The end game of an activist investor is to get in, raise share prices, and get out. Activist investors want to see change within the first few months, and if they don't see changes they will force them upon companies. 

    3. Activist investors are often out to divide a target company’s board

    There are many recent examples of activist investors shaking up the boardroom in more ways than one including Pepsi, Procter & Gamble and UGG

    It is now up to board members to actively work with their investors to make sure everyone is aligned with company vision and strategy. According to McKinsey, "Today, as a direct consequence of shareholder activism, boards and executives frequently review lists of the largest shareholders in order of percentage of holdings. They then decide on a consultation strategy that may well include a visit from an independent director without any management being present."

    4. Ensure success for all your shareholders

    According to the HBR article, "One of a board’s most important roles is to ensure that the company stays true to the mission and values that have made it successful." 

    Activist investors may be your loudest investors, but they are not the only investors in your company. When making decisions, keep in mind all of your shareholders, big and small. 

    Activist investors can be a blessing or a curse depending on how you work with them. If you work with them effectively, they can be a boon to your organization, increase efficiency, and keep costs low. 

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