William A. Ackman needs sharper ideas guys on his ADP payroll.
His much-anticipated plan calls on Automated Data Processing the employer services giant, to become an agile software company. The proposal ignores the standard activist playbook of pursuing clear, deliverable goals, such as ditching noncore units or ending capital-destructive acquisition sprees. Investors are giving Mr. Ackman, the Pershing Square Capital Management boss, a deserved thumbs down.
ADP isn’t an obvious activist target. The stock has more than doubled over the past five years, outperforming the Standard & Poor’s 500-stock index. Pershing Square’s Amsterdam-listed shares, meanwhile, are down more than a third since its 2014 initial public offering. ADP is focused after a 2014 spinoff, and its business of helping clients cope with paperwork and government regulation provides ever-expanding opportunity.
Pershing Square, an 8 percent stakeholder, simply thinks the company can be run better. Pershing Square contends the stock could double within four years through changed management incentives, better integration of operations, streamlining of the business and greater emphasis on software development. These are motherhood and apple pie goals that are easy for outsiders to demand, but hard to put in place.
Mr. Ackman says he “knows that people respond to incentives,” so he thinks that taking off caps on executive compensation will unleash performance. Perhaps, but uncapped incentives at a former holding, Valeant Pharmaceuticals International, contributed to management’s nearly destroying the company. Similarly, while costs can always be cut and business lines merged, ADP has faced increased competition from upstarts like Paycom. Slashing and reorganizing, unless done carefully, could increase…