The proposed shareholder access rules and the debatesurrounding the role of shareholder activists got me thinking. Some opposed to increased shareholder powerpaint pictures of the end of capitalism that will come when shareholders forceboards to adopt unwise business positions motivated by political and otherinterests. Of course, this is not thefirst time we’ve had this debate. Longbefore cheap credit fueled the private equity bubble of the past few years andbefore Mike Milken and the junk bonds made the buyout craze of the 1980’spossible, there were a set a characters who started the modern takeovermovement and were the original shareholder activists.
The first corporate raiders of the post-World War IIera were ThomasMellon Evans, Robert Young and Louis Wolfson among others. They were called pirates and financialhooligans for their attacks on the comfortable life of corporate boards thattypified the 1950s. The takeover tactics that these raidersdeveloped would later become commonplace. They used cumulative voting to get minority board representation, theysuccessfully challenged staggered boards, they used leverage to increase theirinfluence, and they sought to make the market more efficient by buying upunderperformers and turning them around.
I just finished reading Diana Henriques’ WhiteSharks of Wall Street. White Sharks is a portrait of these raiders and Thomas Evans inparticular. Evans, Wolfson, and Youngall looked to acquire underperforming “businesses run by boards devoid of anymeaningful ownership” and underperforming family-owned businesses where the geneticlottery resulted in an uninterested group of founders’ children trying tomanage the business. They bought these businesses and shook them up – sometimesby turning them around and other times by breaking them up and selling themoff.
Evans and the other “activists” of the 1950s were the faceof the nascent takeover market. Theywere also a threat to the social and political fabric of the day. By forcing boards to face facts, they undidall the stability of the business in the 1950s. Notwithstanding this threat from activist shareholders, boards and thesystem stood up reasonably well, adapted and thrived for many years. One wonders what parallels we can learn fromthat experience that might inform how we think about shareholder access rules.
-bjmq