This article discusses the importance of considering shareholder preferences during strategic changes. It highlights how misalignment with investors can lead to failure and outlines a framework for managing transitions to ensure investor support.
Idea in Brief The Problem Strategic shifts often fail—not because of poor ideas or execution but because key shareholders don’t support a company’s change in direction. Why It Happens Companies fail to understand and take into account the deeply embedded preferences of their investors.
What to Do About It Begin every strategic change by assessing your investors’ preferences with a scorecard that captures them on five dimensions. Then manage your transition using a three-part framework to build shareholder support for the new direction. Most companies carefully cultivate close relationships with their investors. Corporate leaders, alongside their investor relations support staff, deliberately craft their communications to attract shareholders that support their firm’s business model, risk profile, and strategic narrative. Throughout earnings calls, investor days, and private meetings, shareholders are sold on a particular vision, and they’re expected to invest with the intention of seeing it realized. But when a company pivots strategically, this carefully nurtured alignment can quickly disappear, creating a misfit with the investor base. Legacy investors—those drawn to the company’s original strategy and vision—can find themselves at odds with its new direction. In extreme cases the tensions can derail the company’s plans and cost top managers their jobs. The French dairy-products giant Danone offers a cautionary case in point. Shortly after being appointed its CEO, in October 2014, Emmanuel Faber unveiled a plan for transforming the company into a global leader in stakeholder capitalism and socially responsible business. As part of it he set out to make the company the largest B-Corp-certified multinational and launched One Planet, One Health, a framework for addressing global environmental and health challenges. He also restructured the company’s business portfolio to focus more heavily on plant-based alternatives to dairy products, like the milk, yogurt, and desserts offered by the company’s Silk and Alpro brands. In many respects, Faber was pushing the company further along an already established course. Danone had often promoted its environmental and social values, after all. And the initial reaction to his reinvention was upbeat. Sustainability advocates applauded it, the company’s environmental, social, and governance ratings improved, and Faber became a celebrated figure in global corporate-reform circles. But beneath the surface, a different story was unfolding. When the activist investor Corvex purchased a $400 million stake in Danone in August 2017, expressing the belief that its stock was significantly undervalued , the share price jumped roughly 7%, suggesting that other investors welcomed an activist-driven strategy overhaul. In 2018 and 2019 discontent was simmering openly. During the company’s 2018 investor day in London, analysts grilled Faber on how the new strategy was affecting margins. Pierre Tegnér of Oddo BHF bluntly asked Faber whether “money and gaining more money” was a top priority for the company. Later, in a 2020 letter to Danone’s board, Bluebell Capital argued that the company had failed to “strike the right balance between shareholder value creation and sustainability,” attributing the company’s underperformance to Faber’s transformation effort and his “questionable capital allocation choices.” The growing mismatch between the CEO’s strategy and investors’ expectations for sales and profit growth eventually led to major changes: Faber was forced out, and Danone’s board quickly reversed course, refocusing the company’s priorities to better fit investor preferences. In the end the strategic shift resulted in a distracting campaign to remove a corporate leader, a half decade of lost strategic momentum, and a multibillion-dollar decline in market valuation. The moral of the story is that CEOs initiating major strategy pivots need to assess the preferences of their investors more rigorously. In the following pages we’ll describe how they can do that through a structured analysis of shareholders’ past investments and behavior. Using this approach, companies can compute an investor fit risk score—a multidimensional measure that allows companies contemplating a change in direction to pinpoint which investors will push back, on what issues, and how much friction to expect. What’s New About the Approach? A critical mistake we frequently see when business leaders introduce a new strategy is that they become so focused on enumerating market opportunities, product demand, and earnings that they forget why their investors bought shares in their company in the first place. In the case of Danone, Faber’s strategy wasn’t necessarily the problem. The long-term logic of moving the business toward a more-sustainable model, organic product lines, and underserved markets was reasonable and arguably prescient. The trouble was that the strategy clashed with the more slowly evolving preferences of shareholders who had invested in Danone for stable financial returns and strong margins; even with gradual changes to the company’s strategy, they expected it to stay on a course similar to that of its peers, like Nestlé. Eventually, Danone’s management realized that. When one of us spoke with Danone senior officers in the company’s Paris headquarters, they acknowledged the new and growing friction with their shareholder base. From the executives’ perspective, the transformation of Danone was jarring to many legacy investors and had created concerns about the company’s ability to compete in its market space. Could Faber and Danone’s leadership have predicted that development? Although CEOs and boards of directors usually make sincere attempts to understand their shareholders, the conventional metrics and techniques they rely on don’t provide adequate insight into what investors want. Most investor relations analyses begin by identifying who owns the stock, using regulatory reports . To understand their shareholders’ attitudes, companies then might purchase ownership analytics from third-party vendors and firms that conduct quarterly perception surveys, which capture the views of investors on a macro level but don’t clearly reveal their individual preferences. Around proxy season, companies may further enlist proxy solicitors and advisers to develop investor communication strategies and forecast voting outcomes. Yet such efforts typically miss important nuances in shareholder preferences and assume they’re the same across all companies. Moreover, surveys of investors’ views on companies are plagued with bias and are backward-looking. They often capture sentiment only after a strategic decision has already affected performance, revealing discontent when it’s too late to respond proactively. So it’s unlikely that the feedback his investor relations team had access to could have helped Faber anticipate that so many shareholders would react so negatively to the strategic pivot. That would have been especially improbable given that the company’s ownership base was fairly fragmented and held by many investors whose pulse was hard to monitor with conventional tools. Photographer James Day’s series Deconstructed Ping Pong playfully dissects the graphic elements of a ping-pong table. Our approach, in contrast, offers a direct look into investors’ likely reactions to a contemplated move. By analyzing the past portfolio changes investors made after strategic pivots by the companies they owned, investors’ voting and engagement patterns at annual shareholder meetings, and investors’ public reactions to moves by activist shareholders, it models investors’ future responses to any given change. Drawing on a wealth of publicly available data and leveraging modern statistical techniques, companies can create detailed scorecards that capture each investor’s unique leanings. Danone’s disclosures in the aftermath of the upheaval revealed that the company was ramping up its dialogue with shareholders, suggesting that its previous approach had failed to capture mounting investor dissatisfaction. Faber himself seems to have felt ambushed. As he later reflected in an interview with Time, “What happened was a few people saw a window of opportunity and for personal reasons pursued that opportunity at the moment where it was easy to destabilize the governance of the company.” But had he applied our approach, he might have foreseen the negative reception from Danone’s shareholders and developed a plan to address it. At least he would have stood a much better chance of doing so. To manage strategic change with an investor-informed lens, leaders should implement a three-step framework. Most investment funds have definite ideas about the specific kinds of strategies they want the companies in their portfolios to pursue. These will be shaped by the time horizon and objectives of the fund in question. Growth-oriented funds, for example, tend to invest in firms that make large-scale acquisitions or aggressively seek new markets, while value-oriented funds generally buy stock in companies that make consistent, incremental capital investments. Although some investors describe their strategic preferences in public disclosures, the decisions they actually make are a more reliable indication of their leanings, especially since disclosures can be tailored to enhance reputation or credibility. Our approach involves identifying the companies in an investor’s portfolio and then scoring each of them on multiple measures across five categories: corporate risk tolerance, diversification, competitive aggressiveness, prosocial activity, and political engagement. We then weight each company’s scores according to its size in the portfolio and calculate an overall average score for the portfolio on each measure. We run the same exercise with all the other investors in our database, which includes a wide range of variables for thousands of institutional investors, such as mutual funds, pension funds, insurance companies, bank trusts, endowments, and hedge funds. Then we compute an average score for all investors for each measure. Next we determine how much each investor’s average score on each measure deviates from the average score of all other investors, which provides a benchmark. This calculation, known as z-standardization, shows exactly what features a given investor favors in the companies it invests in, relative to other investors. The number indicates how many standard deviations above or below the average of all investors the individual investor’s score for the measure is. The scores indicate to a company how receptive a given investor is likely to be to specific changes in its strategic orientation. The company can see how much of a misalignment there is between its proposed strategy and a given investor’s preferences. Now let’s explore in more detail the five categories of preferences the scorecard examines. Corporate risk tolerance. To measure an investor’s appetite for bold strategic moves that involve a high degree of uncertainty, we look at the level of its portfolio companies’ R&D spending, capital expenditures, and acquisition activity and even the language their executives use during earnings calls and other forums. A high tolerance signals openness to longer-term bets and innovative but risky initiatives; a low tolerance may suggest a preference for operational stability and near-term returns. Diversification. To learn whether an investor favors a focused or expansive company strategy, we look at whether it predominantly holds firms with narrow product lines and regional concentration or those with broader product lines and global footprints. Insights into those tendencies allow companies to tailor their strategic messaging and choices to align—or deliberately contrast—with them. Competitive aggressiveness. The scorecard also captures investors’ attitudes about how forcefully companies compete. Some investors gravitate toward firms that make frequent price changes, leap into new markets, or innovate rapidly. Those who hold more-stable, conservative firms may value strategic discipline and steady execution. Understanding these preferences can help executives not only choose strategies that better fit with investor expectations but frame competitive moves in ways that resonate with their shareholders. Prosocial activity. To gauge the degree to which an investor values corporate engagement with environmental and social issues, we examine the investor’s own history of filing shareholder proposals as well as the environmental and social profiles and sustainability-related investments of its portfolio companies. Investors with strong prosocial preferences may push for initiatives around sustainability or community involvement—while others may prioritize financial performance. Political engagement. We also assess how comfortable an investor is with companies’ efforts to influence regulation, public policy, or public opinion. That can be inferred from the investor’s own lobbying efforts, the lobbying intensity of the firms it holds, its public engagement with politicians, and its involvement in shareholder proposals related to political activities. Understanding how much tolerance an investor has for corporate political strategies can help executives calibrate how assertive they can be politically without risking backlash. Once they understand each investor’s strategic preferences, companies can diagnose their overall investor fit risk for a strategic move under consideration. If a strategy involves only modest adjustments, standard investor communications may suffice. But when the move is more radical, a deeper analysis across the shareholder base is necessary. Strategic pivots that depart from a company’s historical trajectory or break with industry norms unsettle investors. For example, shifting from an asset-heavy model to one centered on AI or intangible investments may appear visionary internally but feel jarring to long-term shareholders accustomed to physical infrastructure and stable cash flows. Likewise, the decision to divest a flagship business line or exit a major market may clash with the expectations of legacy investors, even if desired by others. The response of the New York State Common Retirement Fund , a large U.S. public pension fund, to the moves of one of its holdings reveals how even well-thought-out strategic changes can conflict with an investor’s underlying preferences. NYSCRF’s scorecard shows that it mildly favors corporate risk and diversification; strongly favors prosocial initiatives and political engagement; and is averse to competitive aggressiveness. In 2016 a company it owned stock in, Papa John’s, launched a wide-ranging set of initiatives aimed at strengthening its position in the highly contested pizza market. They included ramped-up digital marketing campaigns, renewed commitments to cost leadership, and customer loyalty guarantees—all hallmarks of an aggressive, offense-oriented strategy. See more HBR charts in Data & Visuals Despite the pizza chain’s convincing rationale, 13F filings with the SEC show that NYSCRF reduced its stake in Papa John’s by 61% the following year, signaling discomfort with the direction the company was taking. While there’s no formal statement on record explaining NYSCRF’s reasoning, an analysis of its SEC filings shows a strong and consistent preference for firms that pursue steady, risk-moderated growth rather than rapid-fire competitive escalation. For a fund that tends to favor companies with measured strategic pacing, the moves by Papa John’s most likely triggered concern rather than confidence. Compare that to NYSCRF’s reaction to new initiatives at the Danish medical devices maker Micrel. In 2024 the company announced an elevated commitment to sustainability and published new metrics capturing its energy use, CO2 emissions, water consumption, and waste generation. The response from NYSCRF was swift and positive: The fund increased its stake in Micrel by 185%, reflecting its strong preference for prosocial strategies. It most likely saw Micrel’s actions as a credible signal of alignment with its values and stewardship goals. James Day The individual investor scorecards are especially valuable when a shareholder has a significant ownership stake or a history of voicing dissent. Understanding that investor’s unique preferences can help executives anticipate pushback, tailor engagement efforts, and even preemptively adjust elements of a strategic plan to secure support. And aggregating the individual scorecards allows companies to evaluate the overall investor fit risk for a proposed strategy across the broader shareholder base. It provides executives with a practical gauge of whether a given strategy is broadly aligned with shareholder preferences or likely to generate tension. Consider a hypothetical global industrial firm with a decades-long reputation for asset-heavy operations, which historically has owned a lot of manufacturing equipment and physical infrastructure and generated stable, predictable cash flows in mature markets. Facing slowing growth and increasing pressure to innovate, its executive team is contemplating two bold strategic options: spinning off its capital-intensive division and repositioning the company around AI-driven, data-centric services; and doubling down on its core capabilities by expanding into high-growth, asset-heavy markets overseas. On paper both options appear promising. The AI pivot offers higher margins, scalability, and alignment with future-facing trends. The global expansion leverages the company’s operational expertise and unlocks access to fast-growing customer bases. But which path will the company’s investors support? Understanding the company’s overall investor fit risk can help executives answer that question. While the AI pivot appears innovative and capital-light, it might alarm the existing investor base, which favors long-term, tangible assets and predictable cash flows. For those investors—primarily pension funds, sovereign wealth funds, and income-focused institutions—the shift into fast-evolving, intangible-heavy markets would raise concerns about business-model risk and volatility. In contrast, the international asset expansion aligns with large investors’ preferences for capital-intensive, infrastructure-driven growth in emerging markets, offering upside without undermining familiar fundamentals. When making their choice, the executive team and board should weigh not just the merits of each strategy but also investor compatibility. Compatibility may help swing the decision, but if not, the company will at least know that a move may upset investors and can take steps to manage that risk. Once a company has diagnosed the investor fit risk of its intended strategic move, the next step is to make a plan for engaging investors. It should reflect the degree of alignment between the proposed strategy and the current investor base while also identifying new investors who can support the pivot and accelerate transformation. If investor fit risk is low, the strategy is well aligned with current shareholders. But even in these cases, firms should not remain passive. Proactive communication—via earnings calls, investor presentations, press releases, and one-on-one meetings between the CEO and key shareholders—should emphasize elements of the new move that are in sync with shareholders’ preferences. That will reinforce their support and strengthen their long-term commitment to the company. If investor fit risk is high, a more targeted approach is needed. Firms should consider a three-pronged strategy: Engage likely supporters among current investors. Highlight how the new strategy builds on the company’s existing strengths, and craft a clear, regulation-compliant narrative that underscores the value of the shift and communicates its long-term potential. Address the concerns of “future-misfit” investors. These are the investors that are likely to exit owing to misalignment. Explain how the strategic move complements the firm’s historical trajectory and aligns with their preferences on dimensions where there is some degree of fit, even if the overall fit is low. Transparent communication may not prevent all turnover, but it can reduce the risk of panic selling or activist agitation. Identify and attract “future-fit” investors. These are potential shareholders whose strategic preferences strongly align with the proposed pivot. They can become important allies during a transformation and should be sought out proactively. Critically, this last step turns investor scorecards into recruitment tools. By assessing the profiles of the broader shareholder universe, executives can uncover high-potential investors they may have previously overlooked—or that may be unaware of the company’s evolving strategy. These strategically aligned investors not only help stabilize a stock during a period of change but also can lend credibility to a transformation, influencing other shareholders to stay the course. . . . Too often, companies treat investor fit as an afterthought—something to manage after the strategy is set or an activist has entered the picture. But in moments of transformation, capital alignment is just as critical as strategic clarity. The most successful leaders understand that the viability of a bold new direction often depends not just on its logic but on whether a firm’s shareholders are willing to join the journey and how many other investors are eager to follow suit.
Strategic Change Shareholders Investor Relations Corporate Strategy Change Management
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