While the term “activist shareholder” can imply a group of small investors who buy shares to pressure a change in a company’s social policies, shareholder activism is now more than ever a description of fund titans who buy huge chunks of a company to get it to change its very business.
The past few weeks have been a very, very busy time for shareholder activism. We’ve seen Daniel Loeb’s $14 billion Third Point take on Sony, trying to get the company to spin off its entertainment division. That raised the ire of actor/director George Clooney, causing a public spat and ending with Sony rejecting Loeb’s idea.
Just two days ago, Carl Icahn announced that he’s taken a big stake in Apple. Icahn also called on CEO Tim Cook to begin a share buyback program that Icahn believes will raise the stock price to $700 per share. Last month, Icahn was battling MichaelDell over control of the latter’s eponymous PC company.
Still, no one has been getting the public’s attention quite like Icahn’s nemesis, Pershing Square’s Bill Ackman. The two have openly traded insults on each other’s Herbalife position; Icahn is the company’s largest shareholder while Ackman is short. Meanwhile, Ackman’s battle with the rest of JC Penney’s board in their CEO search was described by Yale School of Management’s Jeffrey Sonnenfeld as “a frat boy affect”. Ackman resigned from the JC Penney’s board on Tuesday.
What these and other activist investors are doing is destroying companies and hurting stakeholders, according to Jesse Eisinger. In 2011, Eisinger won a Pulitzer Prize along with Jake Bernstein for “their exposure of questionable practices on Wall Street that contributed to the nation’s economic meltdown”. He was a reporter for the Wall Street Journal and the New York Times, where he continues as a columnist.
In an interview with Talking Numbers, Eisinger revisits his New York Times piece last year, “Challenging the Long-Held Belief in ‘Shareholder Value’”. He says there are three myths about shareholder activism that need to be broken. And, in true Eisinger fashion, he doesn’t hold back.
“If you look at somebody like Carl Icahn, you see the essential fraudulence of shareholder activism. He has never tried to actually make a corporation better. What he does is issue a bunch of fake pronouncements about sometimes a fake offer to take over a company. Now he’s tweeting, which essentially distills his very superficial ideas into 140 characters. But, he’s not actually helping companies make better products or create sustainable value for their stakeholders, shareholders, debt holders, employees, [or] customers.”
And that’s just the beginning.
To see the rest of this provocative interview and hear the three myths about shareholder activism according to Eisinger, watch the video above.