So start with the most basic question.
You've experienced a lot of these proxy battles through your career.
When do they work and when do they not work?
And by work, I guess, I mean for the purpose of the company and the
shareholders, what do they create value? What do they not?
Well, I think activist investing in activist campaigns in the US capital
markets are critically important as a way for shareholders to enforce good
capital allocation management, executive execution and strategy at companies.
Now, most companies, of course, get those things right in the first place
and don't need shareholder intervention in order to be on the optimal path to
value creation. But of course, there's always the
straggler company or two where for whatever reason, the board's interests
may not be aligned, their skill sets may not be perfect in order to understand
the risks and opportunities that the business has.
And in those cases, having sort of this safety valve of activist investors who
can come along with ideas and and try to push a company in a different direction
can make a huge difference in the success of that company.
And I think it's important for the capital markets because because of the
safety valve function, the sort of the self regulatory function that activist
investors can serve in the market, Where are we in this proxy is in this far?
I've seen some reports there's been a drop off some of the the actress
campaigns. Is that true?
And if so, what do you think accounts for it?
Yeah, I think, you know, part of what we're dealing with is a small numbers
problem. There just aren't that many campaigns
that actually go to a proxy fight every year.
They're sort of 50 or so. So in any given year, it might be higher
or lower. But but Bloomberg tracks as well,
demands made by activists, public letters written by activists, and which
is a much larger universe of companies. And in that universe, we are seeing a
small drop off relative to 20 to 22 is a high watermark.
So it is a little pent up demand probably from the pandemic.
But we have seen some drop off in sort of numbers of campaigns this year.
And what might account for that? I mean, I've I've heard it attributed to
higher interest rates, which makes it more difficult to finance some of the
things you might want to do with it. Also, the stock market has done pretty
well thus far this year. So maybe people, you know, when a rising
tide is lifting all boats, it's harder to get people to jump ship.
Yeah, Yeah. Interestingly, well, I do think it's
those two things. I think it's some other things as well,
some of which are related actually. But we've got a dampened M&A market
where activists, you know, very frequently used to have as a campaign
theme, look, you'd be better owned by someone else who could extract more
value from your assets or brand or market position.
That's harder to argue for when M&A activity is down.
Multiples were down at the end of last year.
Obviously, interest rates higher to finance those take outs, PE firms being,
you know, a little more cautious about acquisitions.
So I think there's some some dampening of activist claims or demand
opportunities because of the M&A market. I think there's a second cause actually,
which is that last year performance among activist investors was was down
significantly, you know, on average worse than the market.
And I think there's a fair amount of sort of licking wounds, you know, trying
to fix the the companies they're already in rather than launching entirely new
campaigns. You know when the portfolio is already
been suffering losses. Tell us what the advisor business
because at least last year I think you were at the top of the league tables, as
I recall. We like to think so, yes.
Yeah, exactly. And I don't know for sure where you are
this year, but. But how do you compete for that
business? I mean, how do companies, boards of
directors pick you versus someone else? Well, only the smart ones do, of course,
know the look.
There's a there's an entire industry that's cropped up in the last ten years
of people who are assisting companies in these situations.
And sometimes I like to say it's just anybody who ever stood next to a proxy
statement, you know, now claims to be an expert and is helping companies.
You know, for the most part, I think companies do a pretty careful job of
selecting who they're going to seek advice from.
This is often a very sort of, you know, harrowing, nerve wracking
situation where you as a director are usually an accomplished professional or
former executive is now being challenged.
And and your judgment and your reputation, you know, and then in some
sense, you know, the work you've done is being challenged by an outsider.
And so unsurprisingly, you seek good assistance.
And I think people turn to trusted advisers who have experience in this
area to help them understand the the minefields in the landscape.
One of the things we know is that proxy contests, if you get there, are usually
lost by the loser and not won by the winner.
And that makes it all the more important that you don't make mistakes along the
way and you seek good advice and input. You raise an interesting question,
though. How do you determine who wins and who
loses? I mean, we had a big situation with
Disney, for example, and that was ultimately settled.
I don't think that they replaced any people on the board.
And yet some would say that actually Disney to some extent, has course
corrected, maybe coincidentally or maybe in response.
I didn't know whether you're winning or losing.
Well, I think Disney's a hard situation, I think was probably a win all around
everybody. Everybody gets you know, everybody gets
stars, you know, for for I think the company's probably in better shape I
think try and you know, got the outcome they were looking for.
But look there were other circumstances where there was a clear loser.
I mean, Pitney Bowes clearly lost. Massimo clearly lost.
Right. Salesforce, I would say clearly, you
know, won, or at least they got themselves through the minefield
without, you know, having to make dramatic changes to the business model,
despite having, you know, multiple activists, you know, chasing them around
and making suggestions. So.
So sometimes it's clear, sometimes it's sort of less clear.
I think on average, shareholders win by virtue of of, you know, this activity in
the capital markets, which tends to just nudge people back on to the path of
optimal and also gives other directors, you know, some nervousness about, you
know, the decisions they're making and sort of has a general deterrent effect
where as they're making decisions about the future direction of companies.
One of the subjects that's gotten a lot of attention in the media is
environmental, social and governance investing.
We've seen a lot of shareholder initiatives, a lot of attempts to have
proxy fights over that. Is that a large factor in your business?
It isn't really. I mean, I think boards are attentive to
these issues for sure, as our management teams and ever more so because the
shareholders who own the companies care and express their concern more and more.
But I'll tell you, when we get phone calls from a chairman of a board or a
CEO and and they're, you know, nervous and worried about the path forward, it's
not usually because of a of a sort of an ESG issue as much as it is a what I call
an economic activist, someone who thinks that the company either ought to be sold
or have a different capital structure or a different management team or a
wholesale change in the board. Those are the ones that certainly garner
the most attention from the board and management team.
The ESG issues that I think people care about for sure.
They don't tend to breed as much nervousness and as high stakes, you
know, of a situation.
