Activist investors have been in the news recently, with Edward Bramson’s activist investment fund making it clear that as one of Barclays’ biggest shareholders, it wants to have a say in future strategy and in appointing a new chairman.
Dr Simon Hayward, author of The Agile Leader and CEO of leadership specialist Cirrus, looks at the role activist investors can play in your business, and what leaders can learn from adopting an activist mindset.
What is an activist investor?
An activist investor can be an individual or an investment business which buys significant numbers of shares in a public company, often with a view to influencing strategy or making changes that they believe will make the organisation more profitable or valuable. There has been a significant growth in the number of activist campaigns in recent years.
Can activist investors benefit your business?
Typically, activist investors will approach your business with a very analytical eye. They will seek opportunities to create shareholder value. They may spot potential that people within your organisation have failed to recognise, although sometimes that potential does not fit with the prevailing strategy of the incumbent management team. So, the insight can be valuable, if not always welcome.
Why do activist investors get a bad rap?
Activist investors have a reputation for a short-term focus on value creation over long-term, sustainable success. Some are considered demanding and aggressive. They can certainly be very disruptive – but disruption is not always a bad thing.
Most organisations today are seeking to succeed in an ever-increasing context of disruption. This includes digital transformation, political upheaval, globalisation, and economic uncertainty. This disruption creates both challenges and opportunities. Seizing opportunities in an unpredictable environment is often fraught with risk, but not seizing them can be riskier still.
Many of today’s most successful businesses operate in a very agile way. They are adept at spotting and seizing opportunities. They understand the need for pivotal changes that can redefine what you do as a business. They seek opportunities to reinvent their operating models and encourage new ways of thinking, behaving, and reacting to events – developing a shared disruptive mindset across the business. They actively seek moments of disruption.
The benefits of acting like an activist
Many businesses keep on doing things in the same old ways because those ways are deeply entrenched. An activist investor will often challenge legacy assumptions, forcing an organisation to change.
Questioning why your business does things in certain ways can be very valuable. And while external agents such as activist investors can force rigorous analysis, it is also something that organisations can do from within.
For example, you may want to gather a team together to take an objective, detached look at your company’s governance, strategy, systems and processes – all with a view to improving performance. Whereas a typical activist investor may undertake this activity with a view to short-term profit, you don’t need to. You can assess your own business with a view to more sustainable success.
If this exercise is going to be successful, you need to give the team the freedom and the licence to explore every part of your business, and you need to be open to challenge and difficult feedback. Be receptive to radical ideas. This can shift mindsets and ignite innovation. And an external team coach can be a really helpful support in making this approach work well in practice.
Another benefit of going through this sort of exercise internally is that you’ll be better prepared if an activist investor actually does get involved in your business. By proactively adopting an activist mindset across your business, you will already have started to think about a shared response. You’ll be in a better position to decide whether you want to embrace activist intervention or not.
© CEO Today 2018