Evaluate your company’s risks and susceptibilities
Running vulnerability assessments to determine whether and where your company might be vulnerable to a shareholder activist is something some companies do regularly – once a year, for example – others on an ad hoc basis and others still not at all. So what’s the best approach for your company?
For Steve Austenfeld, vice president of investor relations at The Honest Company, a vulnerability assessment is part of his activist preparedness – and just good IR more broadly.
‘Before an activist enters the stock, the IRO should be evaluating the company’s risks and vulnerabilities,’ he says. Those risks might stem from internal changes at the firm – performance may have deteriorated or perhaps become more challenged – or the risks could be macro-related, such as due to changing interest rates, he adds.
You want to look at what issue the activist was targeting and examine whether it applies to your company, too
All this is part of what any IRO should be doing, though, and Austenfeld says this makes IR well-placed to flag any activist intentions.
‘IR is certainly expected to be the first group responsible for identifying whether there’s an activist presence in the stock or showing interest,’ he says, with stock surveillance or earnings call analysis offering insights on potential activity. ‘[IROs] should also be talking to their sell-side and buy-side analysts in terms of what news they’re hearing and reading their analyst notes, as well as other companies’ analyst notes.
‘Typically, if a peer is in the midst of an activist campaign, you want to look at what issue the activist was targeting and examine whether it applies to your company, too.’
Bruce Goldfarb, president and CEO of Okapi Partners, prescribes a more formal process. ‘The key to success is prior preparation,’ he states. ‘Some of our best clients conduct annual vulnerability assessments and regularly discuss the issues that can cause a proxy fight or just create an IR problem more broadly.
‘Some combination of the board and management team needs to be involved as it is imperative that they understand what can happen when an activist appears on the scene, or what could cause that involvement [if and] when the time comes. Speed can be a significant differentiator in an appropriate response.’
For Thomas Kudsk Larsen, head of communications and IR at Sobi, however, a one-man investor relations team and a tighter budget mean a formal vulnerability assessment isn't necessarily the answer.
While he says there’s usually smoke – those signals both activists and IR will be looking out for, even if ultimately there’s no fire – Larsen also says that because ‘activism can be hard to predict, investing time out from an already busy day when the chance of an activist actually entering the stock is so low just doesn’t make sense.’
Instead, he argues: ‘If you know your company well, you can put something together very quickly’ if and when an activist appears.
For Gianluca Ferrari, founding partner of sustainability-focused activist fund Clearway Capital, an activist shareholder is still simplya shareholder. He argues that companies shouldn’t consider themselves vulnerable to their owners: ‘It’s completely the wrong approach to ask, Are we vulnerable to an activist? The right question to ask is, Is there anything we can be doing better operationally or strategically to drive value for our shareholders?’
