by Bill George and Jay W. Lorsch
Summary.
Reprint: R1405F
Since the start of the 21st century, a new breed of shareholder—the activist hedge fund—has frequently played a decisive role in interactions between corporations and markets. The game of these activists is simple: They buy stocks they view as undervalued and pressure management to do things they believe will raise the value, such as giving more cash back to shareholders or shedding divisions that the activists think are driving down the stock price. With increasing frequency they get deeply involved in governance—demanding board seats, replacing CEOs, and advocating specific business strategies.
The authors have identified six ways in which to fend off activist challenges or use them to improve your organization: (1) Have a clear strategic focus and stick to it. (2) Analyze your business as an activist would. (3) Have your external advisers lined up in advance and familiar with your company. (4) Build board chemistry. (5) Perform in the short run against declared goals. (6) Don’t dismiss activist ideas out of hand.
In July 2013 the activist investor Nelson Peltz called PepsiCo’s chair and CEO, Indra Nooyi, to tell her that his Trian Fund Management had accumulated a more than $1.3 billion stake in her company. He demanded that PepsiCo acquire Mondelēz International, the former Kraft snacks business (in which Peltz owned a $1 billion stake), and then split PepsiCo into two entities, one focused on beverages and the other on food.
Read more on Boards or related topics Competitive strategy and Mergers and acquisitions
A version of this article appeared in theMay 2014issue of Harvard Business Review.
Read more on Boards or related topics Competitive strategy and Mergers and acquisitions
