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Herbalife had just been hit with a haymaker.
The hedge fund star Bill Ackman had taken to a stage in midtown Manhattan and accused the company of being a pyramid scheme, waging $1 billion that the company was a fraud. Shares plunged. The media went wild and some 3,000 miles away, inside the company's Los Angeles headquarters, CEO Michael Johnson was shell-shocked.
Few inside the glass-enclosed bubble of Herbalife's HQ had even heard of Ackman, no less what he might be up to in calling the company out so publicly.
It wanted to fight back, but how?
First, they had to find out who they were truly dealing with....
Herbalife Chief Executive Officer Michael O. Johnson had been waiting for weeks, hoping its arrival would help unmask the man who had threatened to destroy him. It was spring 2014, and the most closely followed multilevel marketing company on Earth was under siege.
For the better part of eighteen months, Wall Street's resident rock star, the hedge‑fund manager William A. Ackman of Pershing Square Capital Management, had waged war against the company, burning through tens of millions of dollars of his firm's own money, with no end in sight.
Ackman was tactical and tenacious, driven and determined, at times even obsessive in his torment, yet to the executive who'd spent the bulk of his time bobbing and weaving to avoid the onslaught, Ackman was, at the same time, bewildering.
What drove him to attack so viciously, Johnson often wondered.
What really made Ackman tick?
One Sunday afternoon three weeks into May, some of that suspense was finally about to end, with the delivery of a document so sensitive its mere existence would be kept a secret until this writing. Even some of Herbalife's most senior leaders were initially kept from viewing it.
The thirty‑page workup read like something out of a spy novel, but it wasn't a work of fiction. It was an in‑depth psychological profile of Ackman himself, the kind the FBI might do when chasing a hardened criminal. The secret dossier titled "Preliminary Report on Bill Ackman" described an adversary who was "fiercely competitive" and "extremely smart," fueled by ambition and a quest to win at all costs.
Herbalife's vice president of global security, Jana Monroe, had commissioned the effort with one goal in mind—to get inside Ackman's head, to uncover the who and why, his methods and motivation. "My assessment early on was that he was going to be in this for the long haul," Monroe said of the report's critical findings. She was "looking at his attacks on the company and figuring out where they might go so that we could be preemptive rather than reactive."
Monroe had spent thirty years in law enforcement, including more than twenty inside the Federal Bureau of Investigation. Five of those years were in the elite serial crime unit called the National Center for the Analysis of Violent Crime, in Quantico, Virginia. A real‑life Clarice Starling, Monroe was on the teams investigating serial killers Ted Bundy and Jeffrey Dahmer, was an early reader of the Unabomber's notorious manifesto, and knew penetrating Ackman's mind would help the company understand the threat it was facing.
"It was clear (from the report) that this was someone who wears his competitiveness on his sleeve—it's not just business, it's personal, it's me. I'm the one who knows how to make the right investments," said Monroe.
The report was prepared by Dr. Park Dietz, one of the nation's leading forensic psychiatrists, a man who has spent decades profiling evil—from serial killers and stranglers to stalkers and school shooters. Dietz had never met Ackman before, but the Herbalife affair reminded him of the Tylenol tampering case from the 1980s and the incidents that followed—in particular one involving a man who shorted shares of a drug manufacturer then phoned in a hoax to drive the stock price lower.
"Part of what interested me was the resemblance to a case that had fascinated me decades earlier," Dietz said. "I always thought that was an interesting kind of crime."
But Dietz knew getting deep into Ackman's psyche would be difficult.
Unlike most of his prior cases, he couldn't interview his subject and would instead have to scour the internet for old stories and television clips in order to study the major events of Ackman's life.
"Most of it was journalistic," Dietz said. "It was whatever was available—trying to look at his biography, the major newsworthy events and how he'd reacted to prior wins and losses. The task is to try and learn their life story with the available data and look for patterns in the behavior of that person in the life span."
Over dozens of highly descriptive pages, the document, which took nearly six weeks to prepare and cost Herbalife around $100,000 to commission, dissected Ackman and the characteristics that have made him the most famous financier on Wall Street—his history and tendencies, priorities and psychology.
It described a man "aggressive and competitive in all things," with a "grandiose sense of self" who "craves association with other 'special' people and institutions."
"Greed would be an accurate descriptor," it read, "but only because the number of digits followed by a dollar sign is a metric by which he measures his place in the world and expects others to measure him." The document described Ackman as a person who "requires constant admiration, adulation and publicity," who "uses publicists and other contacts to shape and control press reports; chases celebrity and sees himself as a celebrity whose image is to be shaped and tailored by those loyal to him."
"My basic view was that he saw Herbalife as a target that offered him the potential to reap rewards for his investors while appearing to be a crusader for the downtrodden," said Dietz.
"To me, he didn't seem to have much personal awareness," said Monroe of her own research. "His performances weren't very convincing."
Line by line, the document tore Ackman open, depicting a merciless megalomaniac who "uses philanthropy to deflect critics" and is "inclined to arrogant, haughty, disdainful, condescending, patronizing behavior and attitudes that he seeks to mask." Ackman, it said, "blames others for his defeats and mistakes" and "looks for loopholes in the law and ethics that he can exploit."
It threw shade on Ackman's uncanny resiliency, saying he "believes he is in the right and stubbornly, inflexibly, sticks to his position." He is "very controlling," it read, "and believes he can do most things better than anyone else in the room."
Another paragraph attacked Ackman's ability to deal with defeat, saying he is "very sensitive to criticism and failure, which causes shame, humiliation, and rage, producing long‑remembered 'injuries,' but he always seems to have a bigger quest lined up to take his mind off the pain and distract others from the shame."
The report concluded with the following passage:
"Ackman's public persona is an illusion manufactured to project onto a large screen his fantasies of unlimited success. As long as the public accepts the illusion, he can function, but he experiences any and all criticism or resistance as a threat to expose the insecure boy behind the curtain. He has no capacity to manage the feeling of shame that this creates, and he reacts to the feeling with rage."
By some measure, the document confirmed what Herbalife had believed from the beginning, but Johnson and his team thought building a more complete composite of the enemy would help determine the best way to fight back—what flanks to cover and how to manage the campaign.
"We were trying to determine what his motivation was," said Herbalife's chief financial officer, John DeSimone. "How we could get through this and what the endgame might be. We didn't know who Bill Ackman was—the man—the tactics and the strategy he might employ."
But beyond laying out a portrait of the enemy, the document also defined a road map for Herbalife to follow should the situation with Ackman suddenly—and dramatically—change.
Under the headline "Strategic Priorities," it advised Herbalife executives to "keep open a door to genuine alliance" with ground rules "closely negotiated."
"If a path to engagement opens," it advised, "appeal to Ackman's charitable persona by shifting his focus away from Herbalife's marketing and finances to the products. . . . Consider inviting Ackman to Herbalife to learn more about the business, the products, the people." The report even suggested that "Ackman would be drawn to a meeting that gave him a photo op and bragging rights for associating with someone he considers a bigger celebrity with the right image, perhaps President Obama, Michelle Obama, Oprah Winfrey, Jerry Bruckheimer, Mark Zuckerberg, Bill Gates, Melinda Gates, Warren Buffett, or the current or most recent Presidents and Past Presidents of Harvard, Yale, or Princeton." The document also recommended Herbalife "see Ackman's highly public campaign for what it is: an opportunity to tell the world about (the company)."
"Create a big, positive narrative around (CEO) Michael Johnson," it recommended. "THIS is the good guy. . . . Convey his energy, enthusiasm, and vision for Herbalife."
It advised Herbalife to "right‑size the threat" and to "keep the focus away from Ackman personally and on the substance of his criticism. Any publicity centered on Ackman, even negative publicity, can play into his public persona as an 'activist shareholder.' "
The battle with Ackman had consumed the company since December 2012, when Ackman had first laid out his stunning case and his billion‑dollar short. Now—finally—for the very first time, Johnson and Herbalife's other executives felt they could begin to understand why the war had happened in the first place.
It was a war that began with little more than a phone call.
This article has been excerpted from "When the Wolves Bite: Two Billionaires, One Company, and an Epic Wall Street Battle " by Scott Wapner. Copyright © 2018. Available from PublicAffairs, an imprint of Perseus Books LLC, a subsidiary of Hachette Book Group Inc.