Page 97 - Crisis Communication Practical PR Strategies

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7 78 Crisis Communication
Today’s shareholder activism takes many guises, but its most pow-
erful form has less to do with an annual meeting gadfly or a socially
responsible investing advocate, than with a giant public pension fund,
discretely but forcefully expressing its discontent to management and
the board – often through coalitions with other major shareholders
who, together, wield a very big stick. When these groups talk, boards
and management listen.
The management consulting firm Booz Allen Hamilton noted in a
recent study that global turnover of CEOs hit a record in 2005 (the
most recent year of its research). Furthermore, four times as many of
the world’s top CEOs were forced out of their jobs in 2005 as in 1995.
The major reason: investor discontent. ‘Ten years ago,’ the firm con-
cluded, ‘the CEO’s job was all about “stewardship” of the corporation’s
assets for stakeholders; today, it’s all about the bottom line for
investors.’
Many hedge funds have raised shareholder activism to a new level.
Here they identify underperforming companies, design what are often
quick-fix solutions to boost value, accumulate a major equity stake, and
then demand changes in the business strategy. If the company refuses,
the dissidents often engage in a proxy fight to place their advocates on
the board. According to one expert, today there are about 90 activist
hedge funds worldwide compared to 40 three years ago.
We see examples of these institutionally triggered crises regularly:

Frustrated by Home Depot’s stagnant stock, institutional investors
essentially forced the board to replace a highly visible and once-
lauded CEO, Robert Nardelli. One newspaper cited a letter from a
major institutional shareholder to the board listing long-standing
‘deficiencies in strategy, operations, capital allocation and gover-
nance’.
Citigroup recently announced its intention to lay off or reassign
more than 26,000 employees worldwide as part of an effort to cut
costs and streamline the bank’s global operations. It was widely
commented that institutional investors were the driving force
behind this action.
Billionaire financier Carl Icahn, with the backing of powerful
hedge funds, managed to win himself and two allies seats on the
board of Blockbuster Entertainment, the movie rental chain.
Icahn’s group had developed what amounted to an alternative
corporate strategy for Blockbuster, encouraging acquisitions and
moves to blunt the growth of online competitors.

The stock often responds well to these initiatives. But institutional
activism usually has the unfortunate effect of generating a crisis for