of the United States style of shareholder
activism. Part of the reason for this is
perhaps the incestuous nature of South
African investor community. Many of
the fund managers, whose counterparts
in the United States are at the forefront
of shareholder activism, are cowed into
silence by the fact that much of the
money they manage comes from other
shareholders of companies that may
well be ripe for a dose of shareholder
activism.
Inevitably, the question arises as
to whether the actions of a shareholder
activist are good for the long term
sustainability of a company or merely
achieve short term profits for themselves.
Faced with an activist shareholder,
the first reaction of many boards is to
resist and to paint the activist goals as
being bad for the company. However,
the Harvard Business Review, often the
emergence of a shareholder activist in
the ranks of a company's shareholder
base can serve as a wake-up call for a
hitherto complacent board. The demands
of shareholder activists can usefully
point directors to areas of a company's
finances or operations that need attention
or which may unlock value. Apple
announced plans to return US$100
million to its shareholders by 2015,
more than double originally planned.
In addition, Apple recently announced
it was using some of its cash reserves
to acquire Dr Dre's Beats Electronics
for US$3 billion, most of it in cash, the
single biggest acquisition by Apple in its
38-year history.
Given the downturn in the South
African economy, South African
companies can no longer operate under
the illusion that shareholder activism will
remuneration at the next AGM. Faced
with diminishing returns, fund managers
will be examining companies more
closely and calling for them to unlock
value, either through changes in strategy,
demand for board seats, sales of non-core
assets and/or returns of unused cash
sitting on balance sheets.
In order for companies to insulate
themselves from the attentions of
shareholder activists, boards of these
companies should ensure they have a
coherent strategy, that short term goals
are achieved and that the board itself
is unified and not easily divided and
conquered. Companies should also
have on hand a range of advisors, fully
briefed, to ensure that responses to the
attentions of a shareholder activist are
swift and coherent.