Shareholder Activism: Risk Minimization

Recently, we showed you how to find companies that might have problems with their shareholders (more here). We have also claimed that good project management and the right measures can minimise this risk. Today we want to give you a brief overview of where you need to be particularly careful to avoid shareholder activism.

A short reminder: The Activist approach is similar to what a large leveraged fund would try to do in a management buyout. There is a difference in that activists use less capital to achieve this return. A normal leveraged buyout fund would try to acquire the company to force change. Activists try to bring about change through a minority shareholder movement. It is an extremely aggressive form of investment.

Today's activist shareholders are increasing pressure on companies and their board members to demonstrate a clear strategic vision and a roadmap to value maximization. The increase in shareholder activism has led many companies to more proactively review their portfolios and capabilities and determine what fits strategically and financially.

In particular, shareholder activists target companies when they discover weaknesses in their strategies and their implementation. In other words, finding the right strategy, communicating it to the market and implementing it transparently is the key to success. Of course, that is easier said than done. Nevertheless, it helps to bear in mind the choice of appropriate measures, which are frequent reasons for an activist knocking:

When to expect activists

  1. Below average performance compared to your peers
  2. Below-average cash development compared to your peers
  3. Hydrocephalus syndrome: too many overheads
  4. Little innovation (e.g. patents and R&D expenditure) and little sales of new products
  5. Suboptimal capital structure

Of course, even without activists on the market, the goal is not to have any of these point on your list. In Germany, the share of activist activities is increasing (e.g. see here), so it is important to be on guard.

Projects or even programs that deal with improvement on all fronts require targeted management. A good PMO - and of course a good project management software - help to keep the focus and the overview.