In Fidelio’s most recent Overture we highlighted the current boardroom anxiety witnessed by our Board development practice. We highlighted how ‘smart Boards’ can be prepared should the activist place them centre stage.
As a Board Development and Executive Search firm with a strong focus and expertise on IR Search, we spend a good deal of time thinking about the skills and profile that is needed to be a successful Investor Relations Officer (IRO). Our research and market intelligence suggests that the IRO should play a pivotal role in the process of guarding against activism. Without a doubt the Board’s best defence against activism is healthy valuation. This is typically driven by performance and a well understood equity story. This in turn reflects not only clear communication of the corporate strategy but insuring the IRO is strategically well placed to be effective. Having the right people with the right skills in place is critical.
Strategically placed
The quality of communication with the market is all important. This is ensured through having an experienced executive team in place, typically comprising the CFO and the IRO, which is well versed in the capital markets. As a starting point this team will keep a close eye on the register.
The IRO can help in this process through a dotted line direct to the Chairman to ensure that unvarnished investor sentiment can find its way to the Board, even if it makes uncomfortable listening for management.
Good lines of communication between management, IR and the Board will be in place to ensure high quality transmission of the investment communication with shareholders. This will help the company to be considerably better positioned to respond to an activist attack.
Strategic strength
Expectation management is critical. However, if this should fail and the activist appears on the register, the Board would do well to listen. Activists are typically smart and, while the Board may not want to hear it, the activist may well have a point.
Importantly major shareholders will understand the investment proposition, have faith in the management and the Board and will therefore be considerably less likely to side with the activist. A well prepared Board will also be able to reach out at short notice to trusted advisors.
Boards are right to be on guard against activist investors who can derail strategies and demand radical change. A good Board will not only be supervising performance; it will also insist upon highly professional communication with shareholders and the market.
During the coming months, Fidelio is co-hosting a series of roundtable breakfasts with Citi Depositary Receipt Services in London, Paris and Frankfurt. Activism will form a key part of the discussion, “IR as Strategic Advisor to the Board – True or False?”