Category: Business

In the last several months, I have been asked this question by several organizations, including for-profit companies and nonprofit organizations.

My opinion is the issue causing the dysfunction is very consistent across organizations. For many organizations, it is not clearly defined as to the role of the CEO and the role of the board. Since the roles are not well defined, it is very easy to make assumptions, which leads to a high level of frustration on the part of all participants.

I was taught early in my career at Baxter that the best way to think about boards and governance is a really simple rule: “management manages and boards govern.” If this rule is clearly understood and followed by board members and management, things work very well. The problem starts when board members believe they should be directly involved in management, or management forgets that they report to the board in their role as fiduciaries.

When a company first becomes aware that an activist investor is purchasing their stock, the first reaction on the part of the company is often to be very defensive and prepare for battle.

As you would expect from me, my first reaction is to approach the situation very differently – that is, with a balanced perspective.
Let’s first start with some background. What is shareholder activism? In an excellent article from the Boston University Law Review, “Reasonable Investor(s),” Tom Lin of Temple University explains that shareholder activism is a form of activism in which shareholders use equity stakes in a corporation to put pressure on management to achieve a higher stock price.

Okay, so stop and think about the goal of an activist investor. They have capital to invest and are focused on generating a return for their investors. Hmmmm, sounds pretty similar to the goal of company management, the board, and the company shareholders. 🤔