Employees often ‘collateral damage’ when activist investors come calling | 24CA News
Experts say 1,500 lately introduced job losses at Suncor Energy Inc. are an instance of the kind of “collateral damage” that may happen when an activist investor comes calling.
The Calgary-headquartered oil firm — which has operations in Canada, the U.S., and internationally — confirmed the job reductions Thursday, lower than two months after new CEO Rich Kruger took the reins at Suncor with a mandate to scale back prices and enhance the corporate’s lagging monetary efficiency.
Kruger, the previous CEO of Imperial Oil Ltd., was lured out of retirement to attempt to flip Suncor round only a yr after U.S.-based Elliott Investment Management — which on the time owned a 3.4 per cent financial curiosity in Suncor — started aggressively pushing for change on the firm, whose share worth has lagged its friends in recent times.
Last month, Kruger hinted job reductions might be coming, saying in an interview he would “look hard and long at the work people do” to make sure that all the pieces being finished on the firm provides worth to the underside line.
Richard Power, affiliate professor with the Rotman School of Management on the University of Toronto, mentioned these working at Suncor would have been smart to be nervous as quickly because it turned clear Elliott had their employer in its sights.
“They’d be naive not to think that they might be affected by this. An activist investor is going to try to rationalize costs, and one of the highest costs you’re going to have is labour costs,” mentioned Power.
He added that activist buyers goal corporations they really feel are under-performing, and the place they imagine they’ve recognized a plan to unlock extra worth.
“I’m certainly not trying to minimize the contribution of employees, but to a large part, the employees are the low-hanging fruit,” Power mentioned.
Cost-cutting is never the only real goal of activist buyers, most of whom are well-versed within the corporations they aim and are available to the board with expansive proposals for change.
At Suncor, for instance, Elliott Investment Management efficiently pushed the corporate to finish a strategic assessment of the deserves of holding onto its Petro-Canada retail chain, and has additionally known as on the corporate to enhance its office security file.
However, there’s no denying that workers usually get caught within the crossfire when activist buyers get entangled. There had been hundreds of job losses at Canadian Pacific Railway Ltd. (now Canadian Pacific Kansas City) after well-known activist Bill Ackman efficiently campaigned in 2012 for Hunter Harrison to switch Fred Green as CEO and implement an bold cost-cutting plan.
More lately, within the U.S., corporations equivalent to Walt Disney Co. and Facebook mum or dad Meta have additionally introduced main layoffs and restructuring plans within the aftermath of public stress from activists.
Power mentioned corporations have a fiduciary responsibility to their shareholders, and in some instances, an activist investor could also be proper in stating that an organization’s head depend must be trimmed to be able to maximize earnings.
“Remember, they (the activists) have done their homework,” he mentioned. “That may be where the costs have to come from.”
But Anthony Schein, director of shareholder advocacy with the Shareholder Association for Research and Education (SHARE), mentioned corporations are accountable to different stakeholders, not simply shareholders.
“We at SHARE certainly take that perspective that of course, maximizing profit is an obligation of corporate directors and management. But it’s not the only obligation either,” Schein mentioned.
He added that activist investing could be dangerous, as it may well sacrifice long-term worth — and very important human assets — for short-term share worth appreciation.
“We’ve seen over and over again that when companies aren’t paying attention to their people and how they manage and develop their people, then we see skills gaps, labour shortages, and safety risks,” Schein mentioned.
“So much of what a company like Suncor has is its know-how. That comes from people, and there’s no way of getting around that at a company.”
Suncor mentioned Thursday it’s dedicated to treating its workers with dignity and respect all through what’s going to inevitably be a tough course of.
The firm additionally emphasised it won’t make any cuts that would have an effect on employee security.
© 2023 The Canadian Press
