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.