BE IT LEE SCOTT, RICHARD PARSONS, AKIO TOYODA OR HOWARD SCHULTZ, CEOS OF THE WORLD TODAY CAN ONLY IGNORE STAKE HOLDER ACTIVISM AT THEIR OWN PERIL
It started as a movement and soon became an industry. Today the activism ‘industry’ is composed of individuals and organisations that, in fact, make a living from activism. In the middle of all this, organisations consistently face the heat whenever they make a wrong move; be it deliberately or otherwise. Larry Ellison, CEO, Oracle, once famously said, “A corporation’s primary goal is to make money. The government’s primary role is to take a big chunk of that money and give it to others.” But with the rise in activism globally, the expectations and calls for accountability by organisations have clearly grown. B&E takes a look at some of the prominent stakeholder groups globally that keep the activism torch burning bright.
Shareholder Activism: Boon or Bane
In this unquestionable era of globalisation, shareholder activism undoubtedly has a huge impact. These activists are strategically and operationally involved in the companies where they have vested financial interest. Managements of large corporations are severely constrained with their decision making on even short-term (and at times, day-to-day) operations when these activists enter the game. An activist investor may only need to secure a 10-15% ownership stake in large companies in order to place a disproportionate amount of pressure on management, especially considering the average attendance in shareholder meetings. Shareholder activism has been subject to a lot of criticism and a number of cases have been in the global limelight. In 2006, renowned shareholder activist Carl Icahn led a group that called for the breakup of Time Warner into four different companies, cost-cutting efforts and stock buyback worth $20 billion. Eventually the group won concessions, including the $20 billion stock buyback, $1 billion in cost-cutting measures and the appointment of a new board of directors. In another case where Carl Icahn was involved, Genzyme, the world’s biggest maker of enzyme drugs for genetic diseases was last year, was forced to close down production because of alleged manufacturing plant contamination. During the fourth quarter, Carl Icahn owned Icahn Capital LP more than doubled its Genzyme stake to 4.8 million shares, when they started dropping due to the factory problems.
A research conducted in 2008 by the Ohio University documents a 59% success rate for Carl Icahn with respect to achieving his stated goals in his target firms. In an article published by the Wall Street Journal titled ‘Why Carl Icahn is bad for investors’, Prof. Lynn Stout says, “Shareholder activists that corporate boards fear most today are hedge funds like Mr. Icahn’s: unregulated pools of wealthy investors who take large positions in a few select companies, use their ownership position to pressure boards into strategies they claim unlock ‘shareholder value,’ and then dump their stock as soon as the price rises.” He also confirms that a common goal of an activist campaign is to see to it that the target company is sold off to a private equity firm. This also leads to fewer good public companies to invest in for shareholders. Shareholder activism can at times be also healthy. A report published by IPREO in 2007 on shareholder activists shows that 50% of investors who participated in the survey believe that activism is helpful depending on the situation. In cases where the activist’s intent is right, they should work together towards a win-win situation.
Blog and Consumer Activism
Evelyn Murphy, who was the Lieutenant Governor of Massachusetts from 1987 to 1991, once quoted “Corporations will keep doing things the way they’ve always been done, unless they face ongoing public scrutiny, or a real threat to their reputation and self-respect.” Globally, ethical consumerism is a market on its own, and has been growing at 14% per annum. The latest edition of the Ethical Purchasing Index values this market at around $34 billion. Consumer activism is a very old phenomenon, as old as the origins of the word ‘boycott’ in Victorian Ireland. Such movements are known to spread geographically from an epicentre. And this epicentre is now increasingly moving online. The internet has taken consumer activism to new dimensions as information can be exchanged from anywhere. According to China Internet Network Information Center, China will overtake US in terms of Internet users in another five years. Similar is the case with other developing nations around the world where disposable incomes and internet penetration are on the rise. The latest example of backlash against a giant corporate house from the public is Starbucks. Banking on the boom in coffee houses, Starbucks became the undisputed leader. Due to corporate clout and deep resources it was able to overthrow many mom and pop coffee start ups that tried to make their presence felt. But in Kansas city, Starbucks is facing some heavy competition; simply because coffee lovers are now supporting the once struggling coffee start ups. It so happens that whenever there is a coffee shop that seems to be doing good business, it either is acquired by Starbucks or a fresh Starbucks outlet pops up in the vicinity. Starbucks says that it has no such strategy but some evidence does exist to indicate that this happens. This pattern is attested by the Specialty Coffee Association of America. Allegations that it does not pay coffee farmers adequately are also affecting brand equity.
It started as a movement and soon became an industry. Today the activism ‘industry’ is composed of individuals and organisations that, in fact, make a living from activism. In the middle of all this, organisations consistently face the heat whenever they make a wrong move; be it deliberately or otherwise. Larry Ellison, CEO, Oracle, once famously said, “A corporation’s primary goal is to make money. The government’s primary role is to take a big chunk of that money and give it to others.” But with the rise in activism globally, the expectations and calls for accountability by organisations have clearly grown. B&E takes a look at some of the prominent stakeholder groups globally that keep the activism torch burning bright.
Shareholder Activism: Boon or Bane
In this unquestionable era of globalisation, shareholder activism undoubtedly has a huge impact. These activists are strategically and operationally involved in the companies where they have vested financial interest. Managements of large corporations are severely constrained with their decision making on even short-term (and at times, day-to-day) operations when these activists enter the game. An activist investor may only need to secure a 10-15% ownership stake in large companies in order to place a disproportionate amount of pressure on management, especially considering the average attendance in shareholder meetings. Shareholder activism has been subject to a lot of criticism and a number of cases have been in the global limelight. In 2006, renowned shareholder activist Carl Icahn led a group that called for the breakup of Time Warner into four different companies, cost-cutting efforts and stock buyback worth $20 billion. Eventually the group won concessions, including the $20 billion stock buyback, $1 billion in cost-cutting measures and the appointment of a new board of directors. In another case where Carl Icahn was involved, Genzyme, the world’s biggest maker of enzyme drugs for genetic diseases was last year, was forced to close down production because of alleged manufacturing plant contamination. During the fourth quarter, Carl Icahn owned Icahn Capital LP more than doubled its Genzyme stake to 4.8 million shares, when they started dropping due to the factory problems.
A research conducted in 2008 by the Ohio University documents a 59% success rate for Carl Icahn with respect to achieving his stated goals in his target firms. In an article published by the Wall Street Journal titled ‘Why Carl Icahn is bad for investors’, Prof. Lynn Stout says, “Shareholder activists that corporate boards fear most today are hedge funds like Mr. Icahn’s: unregulated pools of wealthy investors who take large positions in a few select companies, use their ownership position to pressure boards into strategies they claim unlock ‘shareholder value,’ and then dump their stock as soon as the price rises.” He also confirms that a common goal of an activist campaign is to see to it that the target company is sold off to a private equity firm. This also leads to fewer good public companies to invest in for shareholders. Shareholder activism can at times be also healthy. A report published by IPREO in 2007 on shareholder activists shows that 50% of investors who participated in the survey believe that activism is helpful depending on the situation. In cases where the activist’s intent is right, they should work together towards a win-win situation.
Blog and Consumer Activism
Evelyn Murphy, who was the Lieutenant Governor of Massachusetts from 1987 to 1991, once quoted “Corporations will keep doing things the way they’ve always been done, unless they face ongoing public scrutiny, or a real threat to their reputation and self-respect.” Globally, ethical consumerism is a market on its own, and has been growing at 14% per annum. The latest edition of the Ethical Purchasing Index values this market at around $34 billion. Consumer activism is a very old phenomenon, as old as the origins of the word ‘boycott’ in Victorian Ireland. Such movements are known to spread geographically from an epicentre. And this epicentre is now increasingly moving online. The internet has taken consumer activism to new dimensions as information can be exchanged from anywhere. According to China Internet Network Information Center, China will overtake US in terms of Internet users in another five years. Similar is the case with other developing nations around the world where disposable incomes and internet penetration are on the rise. The latest example of backlash against a giant corporate house from the public is Starbucks. Banking on the boom in coffee houses, Starbucks became the undisputed leader. Due to corporate clout and deep resources it was able to overthrow many mom and pop coffee start ups that tried to make their presence felt. But in Kansas city, Starbucks is facing some heavy competition; simply because coffee lovers are now supporting the once struggling coffee start ups. It so happens that whenever there is a coffee shop that seems to be doing good business, it either is acquired by Starbucks or a fresh Starbucks outlet pops up in the vicinity. Starbucks says that it has no such strategy but some evidence does exist to indicate that this happens. This pattern is attested by the Specialty Coffee Association of America. Allegations that it does not pay coffee farmers adequately are also affecting brand equity.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
