Activist investors…and how to avoid them!

“Activist investors” are on the rise and increasingly seek to hold company boards to account by fiddling with the levers of power usually with a view to a quick but profitable sale. ValueAct may shortly do this at Rolls-Royce. Such investor activism usually uses the analysis and language of strategic change along with the mantra of shareholder value to allay suspicions that it is really just severe short-termism dressed in the fashionable clothes of value creation.

Whatever the reasons for these ‘activist’ interventions, private equity investors increasingly stalk and spook ineffective or somnambulant executive teams. But what can these boards to do to simultaneously ring fence their domains and beef up their strategic vision while delivering increased profits, revenues and market share?

According to Gerry Brown - experienced director, private equity investor and author of The Independent Director – they need to head off trouble at the pass by effectively tapping into the already available non-executive talent pool.

With immediate effect, boards need to curtail their current widespread poor hiring practices. Better non-executive recruitment is low cost high return sensible housekeeping since it not only wards off most private equity wannabe activist shareholder interventions. It also immediately leverages the long term value creation benefits true Independent Directors deliver when they are allowed to hold executives to strategic account (while providing disinterested analysis and advice).

Brown suggests that there are 10 easily followed non-executive appointment Don’ts for boards to immediately follow to see off, placate or avoid the attentions of shareholders and activist investors:

1. DON’T leave selection method and appointment to chairman/executive directors alone

2. DON’T settle for easiest or second best or limit search to those already known to chairman/board or already on Plc main board

3. DON’T regard appointment as normal gap to be filled with faithful retainer to maintain status quo

4. DON’T start with names and then design role to suit each candidate

5. DON’T limit selection or follow fashion

6. DON’T appoint from existing professional advisers or former executives since this decision duplicates/misses opportunity to broaden

7. DON’T hire those seeking only extra fees, power and/or prestige

8. DON’T appoint those already over-committed or for regular board meetings only

9. DON’T make open-ended appointment or imply automatic reappointment

10. DON’T leave vague the role, term of office or (particularly/especially if a large Plc) permit participation in a performance pay, share option or pension schemes

Gerry Brown also has 10 cost effective and immediately implementable non-exec recruitment Do’s to follow too. He is also available for comment, analysis and interview.