How do activists conduct operational due diligence before launching a campaign?

How to answer

Activists conduct extensive research before going public: (1) Fundamental analysis: build a detailed financial model, identify margin improvement opportunities by benchmarking against peers, analyze capital allocation history (M&A returns, buyback timing); (2) Governance analysis: study board composition (skills, independence, tenure, interlocking directorships), compensation structure, and governance provisions (staggered board, poison pill, supermajority provisions); (3) Shareholder base analysis: identify the top 20-50 shareholders, assess their likely receptiveness to activism (passive funds typically support reasonable activist proposals; index funds use proxy advisory firms), and begin informal conversations; (4) Legal analysis: review charter and bylaws for defensive provisions, assess advance notice requirements for director nominations, and structure the campaign to comply with SEC proxy rules; (5) Operational expertise: engage industry consultants, former executives, and specialized advisors to validate the operational improvement thesis.

Key idea: Financial model, governance review, shareholder base mapping, legal analysis, and industry experts.