Mondelēz International CEO Irene Rosenfeld knows a thing or two about dealing with activist investors.
She has history with two of the most prominent activist investors around, Bill Ackman of Pershing Square and Nelson Peltz of Trian Partners. In an interview with Business Insider, she said she has learned a lot by engaging with activists and actually listening to what they have to say.
“These guys are smart, they have interesting ideas and I think it’s really productive to engage with them,” she said.
That isn’t to say they’re always right, however. Some of their demands are focused on the short-term, she said, and as a company CEO she has to find a balance between running the company for the here and now and the future. Activist investors also sometimes forget the human element, she said.
“I think the single biggest disconnect that I found is that many activists simply sit in conference rooms and do calculations and analysis, independent of the reality of the fact that we are dealing with human beings and people’s lives,” she said. “Some of the actions that one might want to take in overhead reduction, for example, can’t be executed at the drop of a hat.”
Following is a transcript of her conversation with BI’s Sara Silverstein:
Sara Silverstein: And you’ve had a lot of experience with activist investors and a lot of run-ins with them. Can you tell us from your perspective of a CEO, what that experience is like and if anything positive has come out from those experiences
Irene Rosenfeld: I think a lot of positive things can come out of the experiences but I think the lessons that I’ve learned as — we’ve had a number of activists in our stock. I think the first lesson I learned is you have to be your own activist. Before these guys show up, you want to make sure you’ve looked at your business with a critical eye and you understand what you need to do to unlock value. In our case, we were, as we split the company in 2012, we ran into a real slow down in the macro economy so we decided that we need to pivot and focus a lot more in the short-term, on margin expansion, which is what we did. So I think understanding what your profile looks like, how you fare competitively is a critical piece. The second is to engage with your shareholders even when you don’t have to. We’ve always had an ongoing relationship with shareholders, to listen to what they have to say, to listen to their ideas on what we could be doing better, and I think that’s helpful as you think about how someone on the outside might look at your business. The third piece is to engage. I think that there are two companies that get a phone call and they hang up the phone. I think it is most productive — these guys are smart, they have interesting ideas and I think it’s really productive to engage with them. But last but not least, the other lesson is make sure you are focusing on both the long-term and the short-term, some of the demands and some of the things they are asking for is short-term focused and those of us who are running out companies for the long-term need to be concerned about which of those actions will be consistent with where we are going for the long-term.
Silverstein: And that’s something else I wanted to ask you about. How do you balance that? You’ve been CEO for quite a while and most generally when activists come in or other concerns like that, they are serving the shareholder — which is important of course. But how do you balance the long-term investments for the company and the other people for the company — the workers and employees and customers, how do you balance the short-term and long-term?
Rosenfeld: Well, I think that is the art of thinking about resource allocation. In our case, I really firmly believe that the long-term viability of a company is dependent upon having a balance between top line and bottom line growth, and so you need to make sure that you are doing what you have to, to deliver the bottom line but you are making the investments necessary to make sure that that bottom line is sustainable and I’m pleased with the fact that we are one of the few companies who have been able to deliver that balance.
Silverstein: And being on the other side of the activists sort of relationship, is there anything, any advice or anything you can give to activist investors about something that they miss as far as unlocking value — from being on your side?
Rosenfeld: No, I think, as I said earlier, I think there are a number of lessons that I’ve learned and I think the single biggest disconnect that I found is that many activists simply sit in conference rooms and do calculations and analysis, independent of the reality of the fact that we are dealing with human beings and people’s lives and some of the actions that one might want to take in overhead reduction, for example, can’t be executed at the drop of a hat. We have a sizeable business for example, in Europe, and there one has to consult with works councils before one can make any changes to the overhead population. So understanding some of those dynamics are critical in terms of looking at the feasibility of some of the ideas that any one of us might want to pursue.