Expect institutional shareholders and shareholder activists to be more aggressive about forcing change in 2014.
Now that the stock market has soared to record highs and continues to build momentum, expect CEOs to be under even more pressure to produce positive returns for investors. You can also expect institutional shareholders and shareholder activists to be more aggressive about forcing change if they believe the board is moving too slowly.
John McCarvel’s ‘retirement’ as the CEO of Crocs this week forecasts the fate of CEOs who don’t meet investors’ expectations for executing a winning strategic plan. McCarvel, who announced his retirement as part of a deal that gives private equity firm Blackstone a 13 percent stake in the shoemaker and two board seats in exchange for $200 million, is only 56 years old, hardly an age most CEOs would consider packing it in. According to Reuters, McCarvel will retire and give up his board seat, with the financial infusion being used to fund a $350 million stock repurchase plan that will start in the first quarter of 2014. Crocs stock was up more than 21 percent on Monday after the news broke.
So what’s the lesson here? CEOs who don’t have a workable plan to boost their stock price will have a plan forced upon them – most likely by shareholder action. Blackstone came in with financing and a plan to pay investors who want to cash out, thereby strengthening the stock. Crocs’ share price had gone as high as $17.86 in May, but had fallen to $13.33 before the 21 percent jump on Monday put the price at $16.14 at the market close. In this case, McCarvel appears to be the one held responsible. However, boards will be held just as accountable in the coming year.
In a market that is thriving, investors are not going to be patient after having shown patience during the recession. So boards need to re-evaluate their strategic plans now and make certain they are going to deliver for investors. If they don’t, like McCarvel, they may be looking at early retirement.
