Issue #33                                                                                       February 2022
Boards, corporate strategy and activist investors
by Professor Jordi Canals

Activist investors are back. Many boards are expressing concerns about this new wave of activism. After a slowdown in activity at the beginning of the pandemic, activist investment is picking up again. Recent growth in the number and volume of operations and the entry of activists as shareholders of well-known European companies such as Shell, Unilever and Vodafone, offer evidence of a broader phenomenon. 

A major driver of activists’ investment decisions is the potential to improve the target firm’s operational profitability in a short period of time. Very often, activists also push the board to take decisions involving spin-offs, divestments and M&A. Activists often target conglomerates or very diversified companies made up of unrelated businesses. These moves can help unlock value in the target company by highlighting the unique potential of some individual businesses; or by combining those businesses with others through M&A deals to become larger and create scale economies. 

Despite the increasing focus among investors and boards of directors on keeping companies simple and avoiding excessive diversification, the fact is that diversified groups exist. Some of them are true conglomerate groups: a combination of business units or different companies with very limited or zero synergies among them. General Electric, Siemens, ABB, and Sony, among many others, were examples of conglomerates whose boards and top management seemed at some point capable of managing different businesses effectively under the same umbrella. Most of those companies invested significantly in technology and were great innovators. Unfortunately, the magic was lost, innovation and profitability declined, and conglomerates fell out of fashion. The recent breakups of General Electric, Siemens and Thyssenkrupp provide good examples of investors shifting away from conglomerates. 

But investors still love some conglomerates. It is relevant to bring to this discussion the fact that some of the new tech giants, such as Amazon, Facebook and Google, among others, are also conglomerates. It’s true that these are platforms that use digital technology extensively, which is the glue that keeps them together. But the nature of their different business units is quite diverse: online sales, digital advertising, search engines and cloud computing, among other business. Thus, it is not conglomerates themselves that are out of fashion among investors, but certain types of conglomerates, in particular, those associated with industries that have lost their shine, such as traditional capital goods, or oil and gas. 

Boards of directors of companies with a certain level of diversification should have a clear understanding of why different business units are kept together and how the group’s structure really can help each business unit create value. Moreover, boards should engage in discussions about strategy, and own the strategy, in order to help develop the company in the long term. At the same time, boards should keep questioning themselves and the top management team about the basic principles of the firm’s strategy and business model: Why does this company exist? Which customers' needs is the firm trying to serve? What is the firm’s value proposition? How unique is this company? What is the business model and the organization of different activities? Does it have the capabilities and resources to execute the strategy? Is the leadership pipeline strong and the firm attractive for top professionals? Do the top management team and the board regularly explore new business ideas and initiatives?

Including debate about the firm’s strategy on the board’s agenda is not an easy process. Boards often lack the internal organization needed to do this effectively. And when they are able to do it, senior managers may think that the board is overstepping senior managers’ duties. Collaboration between the board and the top management team is indispensable for effective governance and, in particular, for constructive debate about the company’s strategy.

In this new wave of activism, boards would do well to examine how deep and meaningful their understanding and debate of the firm’s strategy is. Boards may signal that they are not doing their job well when outsiders – activist investors – discover better ways of creating long-term value than insiders, specifically, the board of directors and top management teams. Companies are vital social institutions and boards should help develop them for the long term through an effective strategy.

​​​​​Jordi Canals
President, IESE Center for Corporate Governance

Corporate Governance Trends and News to Watch

Global risks are on the rise around the world
Boards of directors should understand these and their implications for their companies in this time of high volatility. The World Economic Forum has just published its annual Global Risks Report, Global Risks Report 2022 | World Economic Forum (, which offers a useful summary and the views of more than 1,000 experts.
Commitment to sustainability and green investment ballooned in 2021
Investors are increasing pressure on companies to decarbonize and expect companies to undertake additional investment in the energy and sustainability transition. A new breed of activist investors is focusing efforts on making companies more accountable for sustainability strategy. Andrew Winston discusses why 2021 was a turning point for sustainability in Sustainable Business Went Mainstream in 2021 (  This  HBR online article offers some useful reflections on how boards of directors can advance sustainability initiatives: 10 Ways Boards Can Act on Sustainability in 2022 (
Higher sustainability standards require better measures and more predictable and standardized corporate reporting 
The International Financial Reporting Standards (IFRS) Foundation, which governs financial reporting in more than 140 countries, announced in November 2021 the creation of the International Sustainability Standards Board (ISSB), to develop a global framework for sustainability disclosure. Bhakti Mirchandani, a well-known asset manager,  discusses the implications of this important move in a Forbes article, The Biggest Change In Corporate Reporting Since The 1930s: How To Read IFRS Prototype Sustainability And Climate Standards ( ​​​​​
Institutional investors are also adding new commitments and ideas to this debate, as well as more pressure on boards of directors
BlackRock’s CEO Larry Fink offers some reflections for companies on sustainability in his 2022 Annual Letter, Larry Fink's Annual 2022 Letter to CEOs | BlackRock.  StateStreet’s CEO Cyrus Taraporevala highlights his commitment to engaging companies to make progress on sustainability and diversity in his CEO’s Letter on Our 2022 Proxy Voting Agenda ( ​​​​​
Shareholder activism has been growing over the past 12 months
The latest Lazard report on activism around the world, Lazard's Q3 2021 Review of Shareholder Activism, v56.pptx, shows growth in the volume of activist operations of 36% in the 12 months through September 2021. Boards should own the firm’s strategy and the pathway for its future growth. They should understand the firm’s strategy better than any activist. Jordi Canals’ paper on boards of directors and corporate strategy (Working Paper: Choosing the Firm’s Future: The Role of the Board of Directors in Corporate Strategy)  offers a framework for boards to think about this relevant issue.​​​​​
Corporate governance is becoming more challenging
A good analysis of how most OECD countries reached today’s levels of governance complexity is offered in a challenging paper by  D. Lund and E. Pollman,  Lund & Pollman v4.3_Redline (, which addresses the growing complexity and  interests in the development of corporate governance architecture in advanced countries.
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