Corporate Raiders? Bring on the Pirates..

When did the dishonourable Corporate Raider become the venerated Shareholder Activist?

In the 70’s and 80’s the Corporate Raider was demonised by companies and portrayed as ‘wild-west’ profiteers who built up stakes in companies or acquired them through leveraged buy-outs, to later-on indulge in asset-stripping,  selling off divisions and even in some cases, leading to bankruptcy.

However, is the Corporate Raider as bad as he is made out to be? A Corporate raider generally only targets companies which are not harnessing all their growth opportunities. In other words, weak spots are targeted specifically because they exist and should not have been there in the first place.. Corporate raiders build up stakes in companies and then, when a substantial stake has been reached, asks for Board representation or proposes motions (using standard shareholder rights and tools) for removal of non-performing management, unlocking value by selling of profitable divisions etc. All actions ultimately resulting in increased shareholder value.

In the past however, there have been instances of Corporate Raiders ultimately leading entities into ruin. Even the (now) venerated Carl Icahn has been accused of ruthlessly taking over companies and then selling off pieces of the assets to pay off the debt taken on to pay for the acquisition. There is even a recent article on CNN Money portraying Carl Icahn as a Pirate.

Other names that come to mind include Danny Loeb, Bill Ackman etc. Letters written by Danny Loeb to the Management of some companies are a joy to read – witty, acerbic and hard hitting –  like an expert surgeon’s scalpel and yet as painful as a pitchfork being roiled . More enjoyable than watching a soap opera. In case you would like to read one yourself, access the letter he wrote to the management of Star Gas in 2005 here. Written after much research by his company, it is truly an enjoyable read. An extract from this letter is quoted here: “…. A review of your record reveals years of value destruction and strategic blunders which have led us to dub you one of the most dangerous and incompetent executives in America.“. Other examples of his letters can be found here.

Today however people such as Carl Icahn are to be lauded. Primarily because they have shown that the standard rights of shareholders, if used correctly, are powerful . They are powerful bulldozers that can force a company/Board into taking the right decision for all stakeholders, especially shareholders.

Believers in the power of Corporate Governance will be amazed that simple rudimentary tools that are the right of every shareholder, are being used so effectively by Corporate Raiders (or should I say Shareholder Activists..) The Corporate Raider of yesterday has metamorphosed into the Shareholder Activist of today, forcing and leading companies into effecting positive changes,  including last year at both Yahoo and Microsoft where management was forced out.

Recent articles on and by McKinsey&Co highlight the wider benefits and contributions of Shareholder Activists. McKinsey’s report also pulls hard data to support their opinion on this. The McKinsey article even has tips on what to do when approached by a Shareholder Activist.

One could ask the question as to why a Corporate Raider is relevant in the Middle East and Asia. This is precisely because all the names I have quoted in this article are mainly American. While I have heard of stories of well educated shareholders preparing for and picking fights with Company Management in  Annual General Meetings in India, and forcing Company Management into into tight spots, I am yet to hear of successful Shareholder Activists in the MENASA region. The only example I can recall in the Asian region, relates to the Chandler brothers initiatives against SK Corp in South Korea. No doubt they walked away with returns of over $700million, however common shareholders also benefited as share prices increased during their campaigns against the management of SK Corp. A quote on an article on the Chandler brothers on even highlights their specific contribution to Corporate Governance “The Chandler brothers contributed greatly to Korea by raising the awareness of corporate governance and provided an impetus for big companies to change..

While I doubt that there is dearth of talent, experience, skill or even money in the region, the missing ingredient or catalyst is one large shareholder or Fund Manager to start the ball rolling. Once ordinary shareholders understand their powers, nothing can stop them..

I look forward to seeing more shareholder activists (or should I say Corporate Raiders.?) in the region.

Bring on the Pirates I say.

(In case you are aware of shareholder activists in the MENASA region, please assist me with their names/names of their companies in the comments section).