Friction #5: The rise and rise of the activist investor
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Editor's note: Five years ago, IT services giant Cognizant was coasting. Growth in the previous decade had been heady as Nasdaq-listed Cognizant went past erstwhile market leaders like Infosys Ltd and Wipro Ltd to become the favoured stock of investors. A speedbreaker appeared when the company found itself at odds with the Securities and Exchange Commission, the capital markets regulator in the US, under the The Foreign Corrupt Practices Act and was forced to settle charges. While that may have been a blip, it was swiftly followed by another assault, this time from Elliott Management Corp., which bought a 4% stake in the company and then forced the management to make changes to its model of growth at the expense of margins. Over the next few years, Cognizant committed to a three-part Value Enhancement Plan, comprising share repurchases and dividend payouts worth $3.4 billion, along with making changes to its board as well as rejigging its high-growth model. The Cognizant stock, which over the previous decade had underperformed the S&P 500, reacted positively and two years later Elliott exited the company having …
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