By Paul Leinwand & Aaron Gilcreast
Activist investors, who expect to boost returns by influencing strategic decisions, are having a significant impact on many industries. And the odds that your company may be targeted by an activist are going up.
Activists are asking fundamental strategic questions: Are the company’s investments in the right place? Is the company’s portfolio too diverse? Are there moves that must be made to create a winning strategy? Senior executives should address these questions in any case, but the rise of corporate activism only underscores the urgency.
For our recent book, we studied companies from a broad range of industries, including Apple, Cemex, Danaher, Haier, Ikea, Inditex (known for its Zara apparel business), Starbucks and others. These companies may do business in a dozen different sectors, but their actions fit together coherently.
For example, Apple’s online services, smartphones and computers all rely on the same capabilities for design and integration. Starbucks’s talent management and distinctive retailing apply to everything it does. Danaher, which designs, manufactures and markets industrial and consumer products, has distinguished itself by its outstanding shareholder return and its focus on continual improvement across all its businesses.
When your company has developed that kind of clear identity, you have leverage and insight that other companies—and activist investors—don’t have. When investor Carl Icahn wrote to Tim Cook in 2014 with concerns about insufficient cash growth and share undervaluation at Apple, Cook’s response was measured. He eventually bought back stock and increased shareholder dividends, but his response to questions about the company’s plans for television and cars was such that Icahn stated publicly that whatever Cook decided was completely Cook’s decision.
Paul Leinwand is global managing director with Strategy&, PricewaterhouseCoopers’ strategy consulting business. He is the author, most recently, of Strategy That Works: How Winning Companies Close the Strategy-to-Execution Gap. Aaron Gilcreast is a principal with PricewaterhouseCoopers.