As chief financial officer at Red Robin International Inc., known as restauranteur Red Robin Gourmet Burgers, Katie Scherping had her hands full coping with activist shareholders. Spotlight Capital and Clinton Group teamed up in 2010 to become the third-largest shareholder group in the Greenwood Village, Colo.-based casual dining chain and became a force to be reckoned with.
The investors presented a bucket list of demands--including succession planning, three hand-picked board appointments, cost-cutting and even, according to news reports, Red Robin's outright sale--asserting that such moves would increase shareholder value.
It all turned into a high-stakes chess match as the burger chain's top executives had multiple meetings and regular contact for more than a year. "Activist shareholders want to be heard," says Scherping, who has since left Red Robin. "They wield a significant amount of influence and require more care and feeding than your other investors."
The dealings with Spotlight and Clinton came at a time when the company was still weathering the effects of the Great Recession, facing higher ground beef and agricultural commodity prices, and the discovery that slashing television advertising budgets had resulted in a "double-digit downturn" in sales that "shocked" even the company's marketing experts.
They made many demands, Scherping says of the investors, and the board and management spent a lot of time working with them. "We hired outside counsel and an external consulting firm and investment bankers who helped us navigate the whole mess. We accommodated them on some of their requests and put two of their recommended people on the board."
But to avoid a takeover of the company, she adds, Red Robin had to institute a "poison pill" takeover defense. "We were able to 'put them in a box,' so to speak," she says. "Bottom line, the entire defense of the company cost the company several million dollars."
Along with being CFO, Scherping had to manage the dual role of investor relations (IR) manager as well. Across corporate America, the CFO generally plays a behind-the-scenes role in investor relations, typically surfacing as a front-line participant in quarterly conference calls with investors and sellside analysts.
The National Investor Relations Institute (NIRI) reports that nearly two-thirds of investor relations managers (65 percent) report to the CFO at their company, according to a 2012 survey of 736 IR executives. That's a slight increase over the 60 percent of IR managers reporting to the CFO in a smaller 1996 sample.
A January 2013 report by consulting firm McKinsey & Co...