Elliott Management Corp.’s activist move against AT&T this month may be a sign that some shareholders are going to scrutinize board strategy more closely due to the Business Roundtable’s restatement of what the purpose of a corporation should be. Now that top CEOs are advocating companies shift their primary focus from creating value for shareholders to creating value for the benefit of all stakeholders, investors may be more willing to aggressively push for short-term returns through activist threats.
Elliott Management acquired $3.2 billion in AT&T shares and publicly asserted in a letter to the board that its own four-point plan could boost the company’s stock price by more than 65 percent by the end of 2021. That has forced the AT&T board to publicly justify the strategy it has been executing for years. The initial reaction to Elliott Management’s proposal saw AT&T shares jump 10 percent. That suggests the AT&T board has considerable work to do to counteract the market’s perception that the activist investor’s challenge has merit.
The Business Roundtable’s adjustment to what a corporation should be focused on may be spooking some investors, so corporate directors should be aware that the perception of what a board’s priorities should be and how quickly those priorities should be addressed is changing. That seems to have been a motivator for Elliott Management, which decided sounding an alarm over what it believes AT&T’s priorities should be was warranted. The activist’s negative assessment of AT&T’s corporate strategy caused the stock price to spike, an immediate benefit to shareholders.
Whether the activist’s claims are credible or not, the perception that something more should be done to improve performance has taken hold. Although some analysts have acknowledged that AT&T has already been acting on some of what Elliott Management put forth, such as reducing debt and selling asset, the AT&T board has been painted as slow to act and unclear about the purpose of its acquisition strategy. The board will now have to use time and energy counteracting those unflattering characterizations. Corporate directors shouldn’t be surprised if other activist investors try a similar tact.
Boards may need to reassess their business plan priorities and timetables and immediately provide updates to investors to reassure them that any Business Roundtable-inspired focus on all stakeholders (customers, employees, suppliers, communities and shareholders) will not slow or disrupt corporate growth.
Directors may also have to accept the fact that going forward, investors will likely be paying greater attention to the business strategies they pursue. Investors may begin to stress an even greater emphasis on improving stock price. Determining how to address this possibility should be on the board’s agenda.
Boards may also want to consider, that under the right circumstances, actively engaging shareholders with particular expertise may prove beneficial. It may help avoid public disagreements about strategy and could provide a perspective on growth strategy that the board may not be aware of.
It may also be worth reevaluating how the board wants to communicate with all stakeholders and the financial markets going forward. Ongoing engagement with shareholders might have avoided the very public attack on AT&T’s strategy—which now has larger implications for the company and its board. Proper communication with customers, employees and communities will also help avoid public spats that can hurt a company’s reputation and stock price.