How female CEOs can tame activist investors

March 11, 2015, 7:16 PM UTC
CNBC Events - Season 2013
CNBC EVENTS -- Delivering Alpha -- Pictured: CNBC Institutional Investor Delivering Alpha conference keynote speaker Nelson Peltz, Founding Partner and Chief Executive Officer, Trian Fund Management, L.P., and CNBC's Andrew Ross Sorkin on July 17, 2013 in New York. -- (Photo by: Heidi Gutman/CNBC/NBCU Photo Bank via Getty Images)
Photograph by Heidi Gutman — CNBC/NBCU Photo Bank via Getty Images

The rise of activist investors has been on the minds of many boards across corporate America. Recently, the media has raised the question of whether Nelson Peltz and others are targeting troubled companies headed by female CEOs. It’s a touchy topic that female executives have stayed relatively quiet about.

I believe gender is a contributing factor in these developments, but not in the way it has been portrayed.

Activist investors naturally look for financial weaknesses of companies; they seek ways to make companies more profitable. Management might not agree with their approach, but what activists’ say about a company offers insight into how companies are publicly perceived.

At the same time, there is a documented phenomenon that suggests women are more likely to be promoted to head companies facing crises. This phenomenon, called the “Glass Cliff,” was first documented by Michelle Ryan and Alex Haslam of the University of Exeter, and it is playing out for many of the female CEOs being targeted by activists today: General Motor’s (GM)Mary Barra, Hewlett-Packard’s (HP) Meg Whitman and Yahoo’s (YHOO) Marissa Meyer all took over broken companies with deep problems that were certainly visible to their boards, if not the world.

Given that women are more likely to inherit challenged companies and that activists are looking for broken balance sheets, it is not surprising that activist investors target female CEOs at a higher rate than male CEOs. It is not bias; it is natural alignment.

So how can both parties turn this into an advantage, particularly for their companies and shareholders?

The answer: communication style. Not only do female leaders have stronger relationship-building and collaboration skills, as one survey shows, but their communication style is naturally more about connection than about control, as evidenced by Georgetown University professor Deborah Tannen’s extensive research on the gender-based differences in conversational interaction. Even at the global scale, women are more likely to work together than go to war.

Collaborative communication skills are particularly useful in a situation that is inherently confrontational. After all, activist investors are essentially there to say they think a company is not being run as well as it could be — in a very public way. Regardless of whether their points are valid, activist investors aim to influence management to change their strategy, and/or change the market’s perception of the company’s prospects so that the value of the stock increases and they make a significant gain on their investment.

Female CEOs have an opportunity to reduce confrontation and use their communications skills to engage activists in a more collaborative discussion. It would have been interesting to be a fly on the wall during talks between PepsiCo CEO Indra Nooyi and activist Nelson Peltz when they reached an agreement last month to not break up the company, which Peltz’s firm Trian had been pushing for.

It is important to bear in mind that by being less confrontational, female leaders aren’t being weaker than their male counterparts. Quite the contrary. The women at the top have often had to be tougher to get to the CEO position, and sometimes they do need to be confrontational with activist investors, as we’ve seen Ellen Kullman do at Dupont (DD). Until the Glass Cliff is a thing of the past, we will continue to see activist investors target female CEOs, and with that, we will see how female CEOs can be more collaborative than their male counterparts when confronted.

After all, activist investors are here to stay, and it is up to CEOs and their boards to figure out effective, less hostile, ways to communicate with them.

Penny Herscher is President & CEO of FirstRain.

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