With hedge fund Elliott Partners' recent targeting of BHP Billiton heralding the potential for more shareholder activism in Australia, The Boardroom Report spoke to author and hedge fund manager Jeff Gramm about how boards should respond.
Jeff Gramm is a portfolio manager at US hedge fund Bandera Partners and is Chairman of NASDAQ-listed Tandy Leather. Gramm was recently in Australia to speak about his book Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism, which was on the AICD's summer governance reading list for 2016. As a guest on the AICD's podcast, The Dismal Science, Gramm gave his perspective as a hedge fund manager on how board's should respond to shareholder activists.
1. Listen to the activists' view
Boards’ immediate reaction to shareholder activists should not be to circle the wagons, Gramm says. A better approach is to bring the activist in. "If you think they're wrong, try to convince them they're wrong," Gramm says. "If you think they're right, co-opt [their] ideas."
Gramm says to remember that you may end up working with the activist. Given that, you want to make sure that you understand their views of the company.
2. Use the activists as a sounding board
Boards are always grappling with whether their chief executive officer is doing the best job for the company, Gramm says. Activists will come with input and alternative ideas from the current management team. The CEO does not necessarily want to expose the board to those ideas but it is important for boards to get outside views on the performance of management.
3. Know your weak spots
Boards should be thinking about what aspects of their business an activist might target, according to Gramm. Being aware of weaknesses in the business, not only prepares the company for a potential approach by a shareholder activist, it should also help a board respond to those weaknesses.
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