Toppling Those Up Top

The conventional wisdom is that while political leaders are being batted about the head, business leaders are resting easy. The conventional wisdom is that while public sector leaders are vulnerable to attack from all sides, private sector leaders are immune from harm. The conventional wisdom is that while government leaders are flailing about, corporate leaders are fat and happy. Well, guess what. The conventional wisdom is wrong!

Activist investors are threatening even successful CEOs to a degree that historically is unprecedented. Activist investors are taking on companies big and small, coming out of seemingly nowhere to challenge top managers, and even to replace them as they deem necessary. Activist investors are building up their war chests, so that what we have had in the recent past is certain to be precursor to the imminent future.  In fact, some of the largest, richest activists now raise billions of dollars to gain increasing clout among increasingly weakened board members in order to agitate for change – strategic, financial, and, or, managerial.  It’s not that activist investors are an entirely new phenomenon. It’s that big players particularly – such as Nelson Peltz’s Trian Fund Management and Daniel Loeb’s Third Point – have become even bigger, and more numerous, and more active and aggressive.

Cases in point in recent weeks include Hertz and Walgreen. The CEO of Hertz Global Holdings, Mark Frissora, was, in effect, forced to step down by restive shareholders. (Though the company said he was resigning for “personal reasons.”) And over at Walgreen, Jana Partners was able to secure for itself two board seats, “considered an important development as activist hedge funds push the envelope and try to shake things up at bigger companies.” (Wall Street Journal, 9/8/14.)

What’s going on over at Dupont is even more remarkable. The above-mentioned Trian Fund Management is seeking to force the venerable chemical giant to dismantle itself. Trian’s statement of intent seems on the surface surprising, if only because CEO Ellen Kullman has turned in a strong performance. She is credited with helping the company recover from the financial crisis. And, during her five years at the helm, Dupont’s stock has climbed fully 160%. Still, her critics charge that the company is stuck, and that to maximize profits it needs to be split.

Many would argue it’s high time for activist investors to be cut to size. Many others would argue that they’re at least something of a corrective – an antidote to the arrogance of chief executive officers. All I’m doing is pointing out the obvious: activist investors are growing in power and influence. This means is that no corporate leader – however successful and self-satisfied – is sitting so very pretty.


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