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Activism represents a wide range of activities by a single member or more of a corporation that is publicly traded that are aimed towards initiating some changes in the organisation. The activities can include those that are based on the significance of whatever desired assertiveness and changes of the activities of the investors. There is hedge fund activism which seeks significant changes to the strategy, management, financial structure, or board of a company. There are also the one-on-one engagements between companies and shareholders.
Below are some of the elements that are likely to subject a company to shareholder activism.
When a company has low market value when compared to its book value that is still profitable and is regarded to be a highly regarded brand, then it is likely to be subject to activism. If it has a sound return on its assets along with a sound cash flow operation, then it is at risk to be subjected to shareholder activism. The same is true for those companies that have a majority of the outstanding voting stock owned by institutional investors.
If the company has a board composition that does not really meet the best practice expectations of today, then activists are likely going to make their move. This is because they perceive that the rest of their efforts are going to be better supported by investors if there s a board that is regarded as stale. Also, boards that have only had a few new faces for several years are likely going to be subjected to shareholder activism.
Preparing and responding to activist campaign
The best way for companies to really prepare and respond to activism is to put themselves in the activists’ shoes. This is to help them anticipate and prepare as well as respond to the campaign.
Businesses need to evaluate their market regions and their business lines. Companies should consider reassessing how the information that they are receiving is presented. The information should clearly reflect the costs and revenues of each of its line and every component needs to be critically assessed.
The ownership of the company needs to be monitored. They need to do routine monitoring of the ownership base to check on any significant changes and shifts. At the same time, they need to be on the lookout for possible activists that may be part of the shareholder.
Risk factors need to be evaluated as well. Being aware ahead of time how activities are likely to criticise a company will allow the organisation to consider proactive approaches that will help address the issues that are likely going to be raised.
The company also requires a god engagement plan to ensure that shareholders are going to be more participatory in situations where their votes need to be cast. Proxy solicitations and maximising shareholder engagements will be most useful tools to ensure that shareholder activism can be better combated.
Learn more about the importance of maximising shareholder engagements in business organisations by reading about Boudicca Proxy Consultants online.