On the list of things CEOs would rather not wake up to, the arrival of an activist investor must rank alongside data hacks and a termite infestation at the head office. Their explicit purpose is to convince other shareholders that you’re not doing a good enough job, and that the solution is either to change strategy or change CEO.
Alliance Trust’s Katherine Garrett-Cox faced exactly this situation last year, in a bitter power struggle with American activist investors Elliott Advisors. As she was on the losing end of that struggle, which already cost her CEO role and board position at Alliance, it’s no surprise to learn she’s leaving the business altogether, after nine years.
‘It has been an honour to have had the opportunity to represent and protect the long-term interests of so many shareholders and to have been a guardian of the Trust's historic purpose of investing for generations,’ she said, the reference to ‘long-term interests’ perhaps a parting a shot given that only a year ago she said Elliott thought ‘dividends are a waste of time’.
Fighting activists tooth and nail, as Garrett-Cox and her then chair Karin Forseke did, is tricky when shareholders have legitimate concerns about the company’s performance. Alliance has faced challenging times recently. Elliott wanted a change in direction (cost cutting, and ditching fixed income, mineral and property assets) and shareholders ultimately agreed.
Garrett-Cox will leave her current position as head of Alliance’s investment arm on March 11. How this episode in her career will be remembered largely depends on the company’s performance over the next few years. If it starts doing better, that would seem to vindicate Elliott’s intervention, but if it continues to underperform its peers, Garrett-Cox could be seen as a strong leader (she was once nicknamed ‘Katherine the Great’) who just fell victim to outside interference.
Of course, such a measurement will always favour the shorter-term strategies that activists tend to advocate – it may be worse over ten years, but that’ll very hard to prove and by then no one will care (or remember). Unfortunately, while a CEO may legitimately disagree with an activist's strategy, it does make you wonder whether it’s better for their career at least to find a compromise with them, rather than fighting tooth and nail and risking outright defeat.