Shareholder Activism: Checks and Balances at Work
My piece from a few days ago set layed the foundation for my views on shareholder activism. Today’s Wall Street Journal had two very different examples of shareholder activism at work which, in my opinion, highlight the effective workings of the free markets and the importance of encouraging active debate around corporate governance and business strategy. And it is this debate that is the lifeblood of the checks-and-balances among corporate managements, Boards of Directors and investors. Without this, neither shareholders nor the other key constituencies at the table - managers, rank-and-file employees and consumers - are well-served. Activism and voice foster discipline and accountability and keep managements’ and strategies sharp; in their absence, entrenched managements, stale strategies and corporate waste can take hold, destroying value for all stakeholders. And while one may not like the characters fomenting conflict through their activist investing strategies, it is a small price to pay for the efficiency and value maximization brought to bear by these intelligent and self-motivated parties.
The New York Times Co. - Chipping Away at the Dual-class Stock Structure
The WSJ piece focused on the powerful Institutional Shareholder Services’ (ISS) joining dissident shareholder Hassan Elmasry’s campaign to break the dual class stock structure and maximize shareholder value. The vehicle by which ISS is expressing its voice is by recommending that shareholders withhold votes for the NYT’s slate of directors at the upcoming Annual Meeting. Mr. Elmasry, who owns 7% of NYT’s Class A shares, has been agitating for changes in governance for some time. He has been successful in facilitating some important policy shifts, most notably increasing the dividend, selling some noncore assets and reducing senior management pay. But there is much more they can do. While technically only the Class B shareholders can decide to undo the dual stock scheme, an institutional shareholder voice like ISS can certainly help the cause. The historic argument for the dual class structure in media properties was to preserve “journalistic independence,” though it is arguable as the impact of any single publication in today’s wired world, where many online media sources have readership that far exceeds major publications in the offline world, warrant this type of protection.
It will be interesting to see if Mr. Elmasry, ISS and the other Class A shareholders can place enough pressure on Mr. Sulzberger and the other Class B shareholders to live up to their fiduciary duty without hiding behind the historic dual class media protection arguments. Because once the arguments become centered upon economics, maximization of shareholder value and business strategy, both management and the Board will find themselves in a far more tenuous position, indeed.
DaimlerChrysler and Tracinda - The Importance of a Level Playing Field in the Heat of Battle
A piece from Breakingviews in the WSJ discussed Kirk Kerkorian and Tracinda’s $4.5 billion bid for Chrysler and their demand for an exclusive two-month period in which to review the Company’s books. Given the chaos over at DaimlerChrysler and the sink-hole that Chrysler has been, a $4.5 billion bid from a well-funded, highly credible investor sounds pretty good. And a two month exclusive isn’t that long, right? That is until you consider that there are already a few possible bidders such as Magna International and Cerberus, in addition to over a trillion dollars of levered capital residing at private equity firms the world over. And they are starved for deals. And competition for deals is stiff. Breakingviews makes the argument that notwithstanding the benefits of the Tracinda offer, giving a two month exclusive is a mistake and DaimlerChrysler should say no. And I would agree. And I am sure most of DaimlerChrysler’s shareholders would agree, also.
So notwithstanding the bear-hug being put on by one of the world’s foremost activist investors, it is perfectly reasonable and appropriate to “just say no” when it is not in the best interest of the company’s shareholders. It takes both discipline and intestinal fortitude to turn down a reasonable offer from a guy like Kirk Kerkorian, but Mr. Zetsche should rally the support of his shareholders and conduct a fair, transparent and highly competitive auction. Because my guess is that he can do better. For DaimlerChrysler’s shareholders. And this is the point, isn’t it?
In sum, activism is good. It doesn’t mean that those being active are necessarily right, or that their demands are necessarily reasonable, but it means that their voice should be heard and acted upon with intelligence and shareholder-focus. And this can mean saying no. Taking part of their recommendation. Or acknowledging that they’re right, incorporating their recommendation into corporate strategy and demonstrating management’s and the Board’s commitment to serving the shareholders. And this is a good message to send. And results are sure to follow.
