[IMGCAP(1)]Activist investing is a recent trend that has gained significant support from retail investors, institutional funds, market commentators and pundits.
Many like to relate activist investing, and the actions that such campaigns result in, to creative destruction—a key economic theory that also appeals to many people. Creative destruction, in essence, means that when something is not working, is inefficient, or is broken, you (or, in this case, an activist investor with their team), take the bull by the horns and fix the problem. Whether it means selling off divisions of the business, restructuring senior management, or increasing the dividend, these actions often lead to short-term and medium-term increases in share price as well as financial performance. Shareholders win, senior management wins, and the activist investor wins. So what’s the issue?
Activist investing may seem like a win-win for all parties involved, but as is often the case, the truth is more complicated than the rosy scenario often depicted by proponents. While many activist investors, including Carl Icahn, Dan Loeb and Kyle Bass, have achieved positive outcomes in many instances and created shareholder value in the process, the process by which these and less well known activists achieve these results is not always optimal for the management of the organization in question.
Put simply, if managers and other business decision makers are occupied dealing with activist investors and their campaigns, they have less time to focus on running the business. If, as should always be the case, the activist campaign centers around the inefficiency of current management and business strategy, how can current management be expected to address these issues if they are, instead, meeting and talking with both the media and the activist team? More to the point, how can organizations of any size head off trouble?
Whether it is a question of activist investors, of an unexpected visit or request for information from a business regulator, an environmental regulator, a joint venture partner, an academic institution with whom you partner, a banker, or an issue with tax filings, every organization has situations where management wishes they just “had the data.”
Many organizations find themselves scrambling for data on a continual basis, as different sets of data are needed for different presentations with different stakeholders. When added up, the employee hours wasted simply compiling and proofreading data is enormous. This problem is compounded when an organization faces a serious, time-sensitive request for information, such as from an activist campaign or a partner organization.
With the increasing use of analytics and data-gathering technology at virtually every level and point of interaction within organizations, it is now possible to collect data on a continuous and almost instantaneous basis. Accountants are well positioned, having relationships and interactions with almost every aspect of the business, to play a more active role in the preparation, maintenance and distribution of information on an ongoing basis to satisfy the requirements of business partners.
Much has been written about the proliferation of data analytics and the necessity of collecting and analyzing information in a real-time manner as a competitive business advantage, but much work remains regarding how exactly to implement such ideas. It is clear that while such processes and tasks are necessary for both business operations, and for successfully dealing with stakeholders, finding specific ways to translate these requirements into operations is an ongoing challenge.
As is often the case with new initiatives and ideas, it is easier to speak about them than to implement them. What is needed is a checklist, process list, or process flow of possible methods by which accountants can simultaneously integrate themselves into the decision-making process while adding value to the process.
Make Analytics a Continuous Process
As it currently stands, auditing and forensics are conducted on a periodic basis, and the usefulness of such information is limited due to the fact that the results are backward looking. With the increasing transparency that business managers have in operations, including inventory, marketing results and sales, it is logical to expect the analytics of such initiatives to keep pace.
Leveraging advances, including improvements and add-ins to Excel, to web-based analytics packages developed by major ERP providers, it is more than reasonable to expect that information should be both entered and analyzed by the organization on an ongoing basis. Most importantly, having access to such analytical data on a real-time basis provides internal audit, senior management and operational decision makers the opportunity to foresee problems before they escalate and to run the business in a more consistent manner.
Develop the Reports You Need
No report is the same, no stakeholder is the same, and no two sets of information required by stakeholders are equal. Akin to how managers in different levels and divisions might want to analyze the same results in different manners, it is logical to expect that external partners will want to analyze and work with data using different methodologies. That being said, there is an element of consistency related to the content, frequency and specific presentations requested by external partners and stakeholders.
Whether the specific information or data in question is related to a specific venture, a portfolio of projects, a grant, or a substantial line of credit to be used for capital expansion, there are always several key components that both organizations will be interested in. Constructing templates and reports to contain this information, and linking them to source data, is a logical way of reducing the amount of time necessary to prepare these reports on a periodic basis.
Accountants and financial professionals are virtually always involved in the preparation, analysis and dissemination of reports to both internal and external users, so it makes sense for these individuals to ask questions. However, this does not happen in a consistent and constructive manner. Linking back to the first two recommendations, it is clear that most reports to a particular partner or external user will normally contain and discuss the same general areas of information—this should be verified in any case.
There are very few things more demoralizing for staff than to work diligently preparing an analysis or report, only to be told it is not what is required at this time. By engaging in a proactive dialogue, and making sure that the templates and inputs discussed above are capturing the correct information for the correct groups, accountants and managers can save time and improve efficiency.
The organizations that best manage and analyze data and information are the organizations that will succeed in the future. With the increasing availability and transparency associated with information, from all aspects of the organization, it is imperative that accounting, auditing and forensic analytics keep pace. Building report templates to anticipate the needs of stakeholders, building spreadsheets and other vectors to help extract and compile the necessary information, and asking questions to ensure both the accounting function and management are on the same page, are just a few of steps that can help the process move forward.
If executed correctly, and maintained appropriately, such steps can make a big difference in both improving internal decision making, and allowing management to proactively engage with all external partners in a constructive manner.
Sean Stein Smith, MBA, CPA, CMA, CGMA, is senior accountant in environmental services at United Water in Harrington Park, N.J., and an adjunct faculty member at Fairleigh Dickinson University.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access