It’s Thursday August 30th and our latest edition of the Feagin Company Weekly Risk Report: What you need to know to stay current in risk management. Visit our website at feaginllc.com.
Blowback on Higher Ed last week – Thank you!
We received overwhelmingly good feedback and I wasn’t sent to the Dean’s office; however, there were some who felt it was a bit “dark” or “frightening.” Sorry for the bad dreams but let us remember, to solve a problem, we must first be able to admit we have it and then take measurable corrective actions. Solid risk management capabilities are a great way to address problems and protect the organization.
Focus Risk – Activist Investor
What exactly is an “activist investor risk”?
When an investor or group obtains 5% or more of a publicly traded company, they must file a Schedule 13D or Schedule 13G with the SEC. The difference? Schedule 13D permits “activist” practices while Schedule 13G is considered more “passive” investment…hold, grow, don’t meddle. In other words, state your intentions, and don’t forget “the road to hell is paved with good intentions.”
Why is activist risk important to track?
An activist investor is out for their own interests, usually, not your company’s. Their strategic manipulation and influence may raise the share price but wreak havoc on the overall stability and longterm health of the company. They often seek the firing of the CEO, board position appointments, strategic shifts, and governance changes.
What do activists investors want?
Money, power, and influence…ultimately, money.
Who are they?
Private equity firms, hedge funds, mega-wealthy individuals, and advocacy groups…institutional investors.
Who do they target (keeping it simple here folks)?
- Companies with undervalued stocks or companies that can grow or sustain other interests and holdings held by the activist.
- In some cases, they target companies with bad or unethical leaders, fire them, and shore up corporate governance to grow share price…not a bad thing per se.
How do they market their ideas?
They propagate their ideas through news outlets, speeches, articles, messaging from associates, their reputation, etc…arguably fake news and don’t forget “social engineering.” See our Weekly where we touch on risk perspective and social engineering.
What do they typically do?
Demand board seats, replace CEO’s, inject business strategies to further their interests, and meddle in the corporate governance. Sometimes good, sometimes bad and disruptive to longterm strategies as they are often short cited on share price and dividends.
Notable activist investors and their targets/affiliations:
- Bill Ackman: Target, Wendy’s, Herbalife, Valeant Pharmaceuticals
- David Einhorn: Lehman Brothers, Allied Capital Corp, and Yelp
- Gordon “greed” Gekko: Teldar Paper
- Carl Icahn: Apple and Xerox
- Dan Loeb: Yahoo, Sotheby’s, Baxter International Inc. and Ligand Pharmaceuticals.
- Nelson Peltz: PepsiCo, Modelez, Kraft, Cadbury Schweppes
What can you do?
- Similar to Business Continuity Planning, have a game plan in place to respond to activist investors and test it (game theory? Don’t go there…go here for the why).
- Know the signs and warnings that make you a ripe target for activist investors (under valued stock, cash flow, EBTDA, poor leadership, non-independent boards, etc.)
- For multi-business companies, make sure each business unit adds value to the overall strategy of the corporation; shed or re-org those that don’t. Kudos Lockheed Martin for brilliant leadership…just saying.
- Think like an activist investor! Yes, I do know that Gordon Gekko is a fictional character from the movie Wall Street but his character, arguably, is based on a real life activist investor or two, or more. Watch this and learn.
Recap – Fake Meat
A new law went into effect Tuesday in Missouri preventing any product from being called “meat” unless it is from harvested livestock or poultry. For thousands of years, men and women on Earth have not been confused by what meat is…until now. Special interest groups are already “locking horns” with the courts to contest the new law. ACLU-Missouri, Good Food Institute, and Animal Legal Defense Fund are among those all wadded up over the new law. On the other hand, The Missouri Cattleman’s Association vows to continue the fight against laboratory grown meat or plant based foods from ever being called “meat.” My bet is on the cattlemen. You mess with one, you might as well mess with them all…from Texas, Montana, Oklahoma, to Argentina…they ain’t put’n up with this bull_____. Check out the July 25th Weekly where we first unpacked “fake meat.”
Geo Political – Israel and Iran “shadow war” heating up
Syria and Iran have reached a new accord on security cooperation. In essence, nothing new but a message to the “West.” Formally, it signals that advanced weaponry will be provided to Syria by Iran via Russia. Prime Minister Benjamin Netanyahu responded that Israel will not be deterred by any agreement between Syria and Iran…he’s ultimately talking about Russia as well. He further added, Israel is prepared to take “strong and determined action.” Coincidentally, Russia has amassed it’s largest naval deployment in a very long time off of Syria in the Mediterranean as they support Asad’s preparation to capture Idlib. Will Asad use chemical weapons? There’s a good chance he may just to test President Trump and NATO while also sending a clear warning to Israel. Asad is feeling bold right now and he’s the perfect puppet for Czar Putin and President Rouhani who are using each other for their own interest and both are using Syria. Such relationships usually end badly. Understand how oil prices and bond rates impact your business…watch for liquidity bleed down as Fed-rates increase. Cash flow is critical right now.
- On this day in 1963, “hotline” communications were installed between Washington, DC and Moscow. Is Twitter replacing the “hotline”?
India as a country is slowly moving in the right direction on risk management regulations. Great article with global applications here.
- Analysts flip-flop constantly on Tesla. If anything, Elon’s a smart strategist playing the media like Charlie Daniels plays the fiddle. Hope Tesla’s corporate governance is as good as their music.
- Incidentally, here’s a great article on how institutional investors and activist investors can benefit the greater good of a company. Well done Christopher Skroupa.
- Ghana promising strong corporate governance at the Bank of Ghana. Don’t forget, you also need ethics and internal controls that work. Investors are tired of empty words and being “taken.”
- Here’s a buzz-phrase you can count on hearing more the future: “agile board of directors.”
- Happy birthday Warren Buffett…he’s a buy and hold investor, not a true activist investor in case you were wondering why he wasn’t on the list.
- Results from our latest survey
- Board Topics: Audit Committee and Risk Committee
- Assessing your risk management capabilities