A Director’s Perspective

I have served as a public company director at more than a dozen companies. I have faced an activist investor approach at four of those companies, including from Starboard, Elliott Management and JANA Partners. Here are four important things I have learned during these engagements.

1. Get help. Boards are accustomed to seeking specialized, independent assistance for executive compensation, cyber risk and litigation. Get help from an outside specialized when an activist shows up. These are not legal problems or purely financial ones. Turn to someone who knows shareholders, communications, capital markets, activist techniques and your company. At HD Supply, where I am Lead Director, we hired a firm to help us objectively review the activist’s suggestions and perspective; it has proven enormously valuable.

2. Speak. Many activist investors will listen. At Polycom, we had an open and constructive dialogue with Elliott. We explained why we did not believe their suggestion was the best direction at that time. We ultimately sold the company and everyone was happy.

3. Listen. At Chico’s (a clothing retailer), my co-author, Greg Taxin, was the activist. (That is where we met!) The Board was initially very defensive and reluctant to acknowledge the performance issues at the company. Eventually, we were convinced and changed the Board
and the CEO. The company and stock then performed extremely well and was in the top 10% of all NYSE companies for four years.

4. Act. Activist investors are certainly not always right. But, they also are rarely entirely wrong. Some have short-term horizons and recommendations that serve their own interests and not the interests of others. But activists are often well informed, thoughtful and well meaning. When you find such an activist, don’t be afraid to embrace the “free” advice. Had the Darden board done so, perhaps they would not have experienced such an overwhelming rebuke by shareholders.