Share |

Turning the tables on activist investors

Bruce Love is editor-in-chief (wealth) of Campden Publishing.

Many of us spend a lot of time bemoaning the sticky fingers of activist investors, with their meddling manipulation of family businesses. The intrusive nature of outside influences trying to affect change on age-old companies is a growing issue for more and more families.

It is the nature of a successful business that it will attract opportunists. Like flies to ointment, they come, and often (with good reason) their advances are spurned by cautious owners who want to keep control of their organisation.

Cablevision founder Jim Dolan is the latest to bow to the demands of activists who pressured him into releasing quarterly dividends to try and breathe life into the company's lagging stock price. The rightness or wrongness of this measure aside, the issue at hand is the effectiveness of these activist investors to instigate change in a business.

Influence-building and leveraging one's position are tactics as old as business itself. Yet it is the activist investor that has perfected these tactics in the current era. But in the hands of responsible investors who take the long view rather than a quarter-by-quarter focus, these strategies can work just as well for any organisation of sufficient size and skill.

In April this year, members of the Rockefeller family hit out at oil giant ExxonMobile, expressing concern over the direction of the company. Using textbook activist investor tactics, the Rockefellers, long-term continuous shareholders, sought to bring about environmentally-friendly change at the oil giant.

Neva Rockefeller Goodwin, JD Rockefeller's great granddaughter, said the organisation was lacking the founder's "entrepreneurial vision", focusing on short-term profits and ignoring "the rapidly shifting energy landscape around the world".

With the dual intention of forcing the company to be more forward thinking and promoting a more environmentally-friendly business model, Neva used the language of corporate governance and business pragmatism to lobby for change in the organisation. Initiating climate change-related shareholder resolutions, the family members conducted a focused campaign of publicity, shareholder lobbying and power-broking to achieve their goals.

And the results seem to have been a resounding success. In a study released this week by Ceres, a coalition of investors and environmental groups, it is claimed that shareholder resolutions this year have achieved breakthrough results that reflect growing investor concerns over global warming.

The report specifically highlighted the Rockefeller's four climate-change related resolutions which caused significant embarrassment to ExxonMobile's management and prompted them into action. One resolution – receiving 30.9% support, representing shareholders owning over $120 billion of company stock – requested that the company adopt quantitative goals for reducing GHG emissions from its products and operations.

Another resolution, requesting a policy for research and development of renewable energy, received 27.5% support. Although neither were majority decisions, they nonetheless made the company stand up and take notice.

It's clear that activist investor tactics work, more often than not to the detriment of a family's plans. But family businesses should embrace activist investor strategies and use them for their own purposes. In the right hands, they can be a powerful weapon in your arsenal.

Click here >>