Investor activism is on the rise: from 2014-2016 more than 1,650 activist campaigns were launched against companies around the world, an average of 550 a year.1 What’s more, whether you’re a blue-chip company or a new economy darling, you’re not immune to this phenomenon. With an increasingly rosy, global economic outlook—where 85 percent of companies project growth rates of 5 percent or more by 2020 compared with just 32 percent growing at that rate today—any misstep is likely to attract activist attention.2
For many Chief Financial Officers (CFOs) an activist investor threat can be a significant distraction because time, resources and focus are diluted. But there is a reason for such assaults: investors are armed with more information than ever, increasingly advanced analytic models and lots of valid questions for management.
So what’s the best defense against an attack? First, the CFO is the C-Suite executive best armed to blunt an activist attack. CFOs have the motivation, expertise, data and insight to be well ahead of the outside investor. Using tools such as advanced analytics, scenario planning and predictive modeling CFOs can partner with CEOs to prepare a compelling strategic and financial story to investors. And if the story is less than compelling, then activist investors may be justified in their attacks.
Those CFOs that are best at positioning their companies to win the hearts, minds and wallets of investors are those who combine seven fundamental elements to deliver value to investors.
The Activist CFO focuses on:
Results. The best defense against any activist is results. Are you consistently delivering a total return to shareholders that is at or near the top of your competitive peer group? If not watch out, an activist assault may be imminent. Our research shows that technology (47 percent) and talent (42 percent) are seen as the most critical elements to executing strategy.3
Strategy. Can you demonstrate how your strategy will deliver market leadership and superior returns while handling volatility and uncertainty? Our research finds that half (56 percent) of organizations feel their current growth strategy faces some level of risk for disruption.4 Further, 90 percent of organizations see technology as a fundamental driver of their growth strategy.5 Demonstrating excellence in technology innovation and deployment is an excellent leading indicator of effective strategy execution.
Portfolio. Does your portfolio make sense? Do you have businesses that are diluting performance with little chance of significant improvement? If so, divest them. Are there businesses that are significantly undervalued compared to if they were standalone companies? If so can you demonstrate the value? If not, spin them off.
Investment. Accenture Strategy research indicates that as much as 70 percent of staff time is consumed by processes that do not directly add enterprise value.6 Can you demonstrate that your business is optimized? Do you have the right balance between investing in the core while also rotating to the new in terms of innovation and digitalization? Have you zero-based your organization and your spend to ensure that cost, quality and productivity are optimized?
Execution. Can you demonstrate your ability to execute on items 1-4 in a consistent and compelling manner? Do investors have confidence in your ability to execute?
Governance. Does your governance model inspire confidence, promote transparency and align the interests of ALL shareholders, management and other constituencies? This can be a challenge with fast-growth, new-economy companies where majority stock ownership and executive management are vested in the same people causing friction with minority shareholders after an IPO.
Storytelling. Last but by no means least: Can your senior leadership team and especially your CEO and CFO tell a great story that links vision, to strategy, to shareholder outcomes to inspire excitement, confidence and loyalty?
These elements are not new or unique. What is new is for CFOs to adopt an investor or ‘outside in’ mindset. Finance chiefs have been internally focused and backward looking for a long time. However, as digitalization of routine business and finance operations accelerates with up to 80 percent of the work being automated7, CFOs have both the time and the data to adopt a more forward-looking, strategic and investor-centric mindset.
While not guaranteeing immunity from investor attacks, the Activist CFO can leverage increasingly rich data, technology and tools to thwart the attack if unmerited, or address an investor’s concerns in a fact-based and constructive manner if they have merit. Those that fail to meet the challenge face the potential for knee-jerk reactions that could not just be a huge distraction but also damaging to the long-term success of the company.