European Audit Committee Leadership Network, May 2015
On 8–9 April 2015, the European Audit Committee Leadership Network (EACLN) convened in London for its 23rd stand-alone meeting. One session was a dialogue with Harlan Zimmerman, a senior partner of Cevian Capital, Europe’s largest activist fund and one of the largest activist funds globally.
Mr Zimmerman and EACLN members touched on three topics:
Trends in investor activism
Mr Zimmerman explained that among investors dedicated to activism, there is a spectrum between “attackivists,” who use adversarial tactics to pursue short-term gains, and “constructivists,” who use collaborative approaches and in-depth research to help companies achieve long-term success. In the European context, a variety of factors, such as concentrated ownership, more extensive shareholder rights, and a more polite business culture, have tended to make adversarial tactics more difficult but also less necessary in the effort to influence companies.
Company responses to activism
EACLN members and Mr Zimmerman remarked on the measures companies can use to prepare for and respond to an activist intervention. It is critical for a company to understand its long-term shareholders and the issues that might draw the “wrong type” of activist interest. Companies should also prepare a response plan and a team that includes external advisers. If an activist approaches the company, management and the board should evaluate the activist and their case with an open mind. Mr Zimmerman also suggested some approaches to understanding what sort of activist the company is facing, such as requesting references and asking about holding periods and past board experiences.
Activist investors on the board
Activists often ask for seats on the board, though Mr Zimmerman noted that the acceptance of activists joining the board varies from country to country. EACLN members pointed out that having a constructive activist on the board can bring significant benefits in terms of resources and knowledge, withstanding short-term pressures, and bolstering the board’s ability and willingness to challenge management. However, a member suggested that, to maximize these benefits and prevent information asymmetries on the board, the information that flows between the activist and management should include the whole board.