Monday, June 14, 2010

Irony-Watch #6: Deactivating the Activists

As readers will know, I dislike the sentiments of undeserved entitlement. Not that I include health-insurance, public transport or a basic social safety-net as entitlement, despite its pejorative coinage. Rather, what I find loathsome is the sense of entitlement that, for example, certain senior corporate managers display that abuses both shareholders and employees for the primary purpose of parochial gain, or the type where political representatives abuse power for private gain at the expense of the public interest. The latest research into the psychology of power (as summarized by The Economist magazine) discusses results that show marked differences in corruptive behaviour depending upon whether the person in a position of control believes they "deserve it". In other words, power only corrupts the so-called entitled.

Activist investors historically purported to ferret out such senses of entitlement at the expense of shareholders in order to challenge managers where it was believed egregious AND of course, where a buck could be made (though not necessarily in that order). A potentially noble pursuit complementing its lucrativeness, if indeed as Elvis Costello sang, their aim is "true".

Yet, curiously, all is not well in Tara where Carpetbaggers such as Christopher Hohn's TCI. Atticus, Warren Lichtenstein's Steel, and Baran's Symphony Financial (SFP) are finding themselves in - how shall we term it - interesting positions visa-vis their very own investors, many of whom did or would like to get their money back, yet are faced with gates, lock-ups, etc that preclude such actions - at least to the letter of the prevailing Information Memorandum governing the rules of the letter of their investment. Of course while the spirit may suggest other courses of action, the letter is permitting the manager to hang on to the assets, collecting not-insignificant management fees (read: a lot by mortal measures), whilst the investor whose many resides in dubious, concentrated, often illiquid, positions stews, fumes and waits.

All which raises the possibility that the garden variety of activist's aim may NOT be so true, and hypocrisy may be prevailing for the sake of squeezing yet more (if at this stage of underwaterness only management fees) from hapless investors. Of course I could be wrong, and shutdown, orderly liquidation or simply distribution in-kind to shareholders may pose more problems and be more costly than staying the course, than I am presently able to conceive. But then again, maybe not. There is certainly no shortage of capable, more competent people willing to watch the paint dry on such large concentrated illiquid positions for a fraction of the prevailing management fees currently be collected.


Pat Shuff said...

'In other words, power only corrupts the so-called entitled.'

Václav Havel on the temptations of political power

Wonderful essay on how the perks and privileges associated with position, like public office, erode and corrupt.

Anonymous said...

She gave a little flirt, gave herself a little cuddle
But there's no place here for the mini-skirt waddle
Capital punishment, she's last year's model
They call her Natasha when she looks like Elsie
I don't want to go to Chelsea