ALEX COHEN, host:
This is Day to Day. I'm Alex Cohen. Quarterly reports are out this week. Intel, Microsoft and Sony all announced losses. If you're a CEO of a company that's showing signs of weakness, you may be watching for signs of potential foes known as activist investors. That's polite terminology. Corporate boards often call them meddling shareholders. But given the current economic climate, it might be time for a little peace, love and understanding. Diantha Parker explains.
DIANTHA PARKER: Activist hedge funds don't just buy stock in a company; they buy a lot of stock. And then they leverage their position for a voice in how the company does business, including board oversight, corporate structure and even staffing.
Mr. JAMES MITAROTONDA (CEO, Barington Capital Group): We're not trying to be hostile. We're not trying to be destructive at all. But, you know, as a meaningful shareholder, we certainly want to be actively involved in helping the company improve the valuation.
PARKER: James Mitarotonda founded and leads Barington Capital Group, an activist fund based in New York. A few years ago, Barington bought a 5 percent stake in Ohio-based Lancaster Colony and made some recommendations. Keep your successful food business and sell your candle-making, glassware and car-related branches. Also, put someone on your board who knows about food. Mitarotonda says Lancaster didn't disagree.
Mr. MITAROTONDA: And, you know, they took all of the necessary steps. And, you know, certainly, obviously, even with the dramatic reduction in the overall market, that company was really not impacted as much as, you know, other companies.
PARKER: But it's not always so cozy. Board representation, especially, can be a sticking point. Billionaire Carl Icahn, the closest thing to a rock star in activist investing, recently wrote an article on his blog, The Icahn Report, called "The Right Way to Icahn-Proof your Board." His advice is simple: Don't give me reasons to come after your board to begin with. New York University accounting professor April Klein did a study on aggressive activist investors and says they pick their targets carefully - so carefully that many are caught off guard.
Professor APRIL KLEIN (Accounting, New York University): They were actually very successful companies. They actually had higher-than-average stock returns. So a CEO can think he's doing a great job and suddenly, here's the activist.
PARKER: And often, that CEO's hackles go up, says Charles Elson. He directs the Weinberg Center for Corporate Governance at the University of Delaware.
Professor CHARLES ELSON (Director, Weinberg Center for Corporate Governance, University of Delaware): Most boards are concerned that an activist will disrupt the dynamic of the group and steer the group into dissension and make it harder for the group to run a business.
PARKER: And he says sometimes, it can. Companies are also likely to resist if they think activists just want to hike up the share price, sell and get out, or if they think the activist knows little and cares even less about what their business does. But Elson, who serves on boards, says it's good for board members to keep an open mind.
Prof. ELSON: As a director, the key is to solve the problem that brought the activist there to begin with. And the activist is the old line, don't shoot the messenger, focus on the message. And the message is that if something is wrong enough that an activist would appear, you obviously have to deal with the issue.
PARKER: And in the current climate of low stock prices and lower profits, activists and corporations are more likely to try meeting in the middle. For NPR News, I'm Diantha Parker in New York. Transcript provided by NPR, Copyright NPR.
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