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Battling Boss Blaming

In the face of adversarial activist campaigns, boards and management must work together to get their message out—instead of folding like lawn furniture.

In the face of an unprecedented wave of high-performing, honorable CEOs forced from top office as a consequence of the short-term mindset of shareholder activism, boards are examining alternatives to boss-blaming reflexes.

Who takes the fall when the team loses? The well-paid coach, of course, with little appreciation of yesterday’s triumphs or patience for the promise of tomorrow’s performance.

For example, last summer, General Manager David Griffin was fired by the owner of the Cleveland Cavaliers. Sure, he led the team for three seasons, culminating in the Cavs’s first-ever national title—the NBA champions in the 2016 season—but that was last year. Despite successful strategies and star recruiting (e.g. LeBron James and Kevin Love) that helped snag last year’s title, his accomplishments were swiftly wiped out by his losses in the 2017 finals to the Golden State Warriors.

At least sports owners own the enterprises they govern. With merely 1 to 3 percent of ownership, activists launch hostile tweet storms and media campaigns to shake down boards for board seats. Activist proxy campaigns in 2016 jumped 42 percent over 2012. Using dirty-trick maneuvers borrowed from the playbooks of political opposition research, activist investor tactics have included massive media blitzes promoting misleading apples vs. oranges financial analysis, slide decks with damaging, distorted snapshots of the career mishaps of board directors, canvassing of CEOs’ neighbors, foraging through leaders’ trash, approaching their children in bathrooms for access to Facebook accounts and printing slanderous misstatements.

“We must all hang together or, most assuredly, we shall all hang separately.”—Ben Franklin.”

Few boards are prepared for such nasty public battles. Of the 37 proxy fights that did make it to a vote last year, 27 were won by management. Thus, one might imagine that boards would feel more confident. However, directors are often wrongly counseled to settle with activists for fear of reputational damage and expensive proxy battles.

Roughly half of last year’s proxy battles were settled, with activists invited onto the board, while 15 years ago, only 17.5 percent of proxy battles were settled prior to a vote. FTI research examining 300 activist campaigns between 2012 and 2015 found that CEOs were three times as likely to be replaced within 12 months of an activist joining the board.

The remedy for this requires preparation, partnership and fortitude through:

Spirit & Solidarity: Benjamin Franklin intoned, “We must all hang together or, most assuredly, we shall all hang separately.” The strategy of many activist firms is to confuse investors while dividing and conquering the board fearful of humiliation. Bullies who invade schoolyards and boardrooms are beaten only with collective action.

Listening & Learning: Just as executives are not interchangeable parts, activists are not identical. Some bring good ideas, fresh perspectives and constructive, collegial, trustworthy temperament. Home Depot, Yahoo and Microsoft are just a few of the great firms that benefited greatly from constructive engagement with activist investors.

Fight with Facts: Running out of distressed targets, activists stormed such healthy firms as Apple, Dell, P&G, Honeywell, ADP and DuPont, often with faltering performance themselves far in the shadows of the global icons they’ve targeted. Proper industry yardsticks are essential. For those under assault, perhaps it’s worth reminding investors of this fun fact: According to a recent Fortune study, activist funds have beaten the S&P Index only three of the last eight years.


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