Best Practices

Best Practices


There have been several prominent business stories over the last few months about activist investors vying to get on the boards of directors of several large companies (Procter & Gamble and ADP are recent examples) and challenging the strategies, priorities, execution and results of the existing management team. While your company likely will not attract the attention of an activist investor, it is instructive to look at the general types of questions they ask, as they may well be useful at your company, too.

Activist investor questions often focus on the following areas of inquiry:


If your company has been experiencing deteriorating financial performance, then an activist investor would likely question your strategic choices. I believe it is important to have a three- to five-year strategic plan that is reviewed and updated on an annual basis. The biggest mistake people make with regard to strategic planning is they fail to consider a wide enough range of strategic options. Consider expanding the composition of the team that you task with your strategic planning process; perhaps include an outside consultant and people in your company who are considered creative, out-of-the-box thinkers.

I suggest that you also stress test the chosen strategy by considering how well it would do in a variety of possible scenarios that may play out in the industry over the next five years. These could include different macroeconomic scenarios, specific industry scenarios and scenarios related to your major competitors and customers. Ponder options such as mergers, acquisitions and partnerships if you havent considered them recently.


Activist investors often challenge the speed at which a company is moving toward implementing its strategies and achieving improvements in results. Often, one hears that activist investors prioritize short-term financial gains ahead of longer-term, sustainable improvements, and that may certainly be true in some cases. However, researchers at the universities of Duke, Columbia and Cornell collected data on manufacturing plants and companies in the United States where hedge funds bought at least 2 percent of medium- or large-size companies. They found that plants owned by firms targeted by activist investors tended to perform worse than their peers prior to the investors intervention but substantially better after three years, with higher returns on assets. Other studies, including one by McKinsey Global Institute, have come to similar conclusions.

Consider challenging the speed at which your own company is achieving results. Do you often have to extend deadlines to reflect delays on projects? Do you repeatedly fall short of financial forecasts? If so, engage with your management team to understand why this is happening. Perhaps there is a lack of urgency in the corporate culture which needs to be addressed. You may want to evaluate improved incentives for project or strategy execution and examine processes to address employee performance issues.


Activist investors often question operating and fixed costs going up while revenue is flat or declining. This is clearly something to look at in the low-growth lubricants industry during a period of low inflation. Consider limiting fixed cost spending to something less than inflation each year, and challenge your team to deliver this. Set targets for your procurement team to produce savings in raw materials and indirect costs. Showcase savings in company communication materials to highlight the importance of these sometimes low-profile activities. Ensure that you are spending your capital on the right projects; subject your significant capital and research and development projects to a lookback process in order to assess whether they are generating the expected returns and whether they are brought in on time and on budget.


Structure is more likely a significant issue if you are in a large company rather than a small one. Consider whether your management structure is leading to significant overlap or gaps with regard to decision making. Perhaps some decisions are spread over so many people or parts of the organization that they move very slowly and may be plagued by conflict. Contemplate whether other decisions are made with too little evaluation or challenge.

Another aspect of structure to examine is whether your company would benefit from moving product lines from one part of the business to another. Sometimes small but potentially profitable product lines get ignored when buried in a part of the organ­ization that has large and visible product lines to manage. If your company does significant business globally, you may want to reflect on which parts of the organization should be globally versus regionally organized. Keep in mind that any change in business and management structure is likely to be viewed with fear and skepticism from potential winners and losers in your organization and is not to be entered into lightly.


Activist investors often look for companies that fail to address fixable problems or suffer repeated operational mishaps. This is a good area to investigate. Does your company have a poor safety record compared to your peers? Have you had substantial, repeated financial losses in your manufacturing plants? I suggest you focus on your operational data and set targets for improvements in safety and operational excellence.

Think about which fixable problems may be your biggest barriers to success and what has prevented you from addressing them in the past. You may want to tackle at least one of these significant problems by setting up a high-powered team with the appropriate knowledge and skills. Often we get used to the existence of some fixable problem rather than tackling it, especially if it seems particularly hard or resource-intensive to fix. However, tackling such a problem with a multi-year plan may unlock long-term improvements and free up resources down the road.

You may also want to look into what, if any, significant litigation you may be involved in and investigate options to resolve it, as ongoing litigation is not only costly in financial terms but can also be a source of significant distraction for your employees and management team.

The activist investor mindset can be extremely useful in spurring you on to a higher level of business success!

Sara Lefcourt of Lefcourt Consulting LLC specializes in helping companies to improve profits, reduce risk and step up their operations. Her experience includes many years in marketing, sales and procurement, first for Exxon and then at Infineum, where she was vice president, supply. Email her at or phone (908) 400-5210.

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