The Value of Being Actively and Constructively Engaged

Some activist investors may take to the airwaves in highly public campaigns to force companies to fire their management teams or split up the business. These efforts are sometimes confrontational and may not always be intended to find the best outcome for investors. At Mutual Series, we believe we can usually be more effective working behind the scenes to encourage the changes necessary to create and realize shareholder value. Constructive engagement has long been a key tenet of our investment process—usually away from the media spotlight—as we look to unlock better performance from our holdings. We have influenced boards to rein in bonus payments in the face of a sharply weaker stock price and have held executives accountable for their failed investments. We are actively involved in the investments we make, believing that frequent and constructive engagement can create significant value over the longer term.

A Catalyst for Change

Engagement is an ongoing process that involves building relationships at all levels of an organization—from board members and senior management to operating executives and others responsible for leading the organization. Only by doing so are we able to really understand a company and its culture. Engagement is also a two-way street. While we expect management to listen and take our observations and suggestions into consideration, we also believe it is incumbent upon us to fully understand their perspective and strategy before offering our ideas. We recognize that not every management decision will go our way, but we believe having an open discussion helps both sides understand each other’s position, and builds trust, which is essential to effective engagement.

As engaged owners and stewards of our investors’ capital, we often talk to management teams about their governance practices and encourage changes when we believe they are falling short. This is fundamental to our investment approach as we believe that good governance starts at the top of an organization and helps to define its culture. While strong governance can create the environment to enable long-term value creation for shareholders, weak governance can set a bad tone and be corrosive. In our view, regular, active engagement is crucial in nurturing good corporate practices and reforming bad ones before they cause damage.