64 Business The Economist May 14th 2022
Wherethewildthings were
“W
hen we goat ’em,” Carl Icahn growls, proudly, “we go at
’em.” After decades as chief executives’ numberone tor
mentor, the 86yearold’s disdain for them has softened only a tad.
“I wouldn’t call them buffoons,” he told Schumpeter recently,
“but, with many exceptions, they are in way over their heads.” Mr
Icahn continues to browbeat managers for poor performance. As
The Economistwent to press he was in the final throes of a fight
with Southwest Gas, a utility. His gripes are broadening, too. This
month and next he will seek to oust directors at McDonald’s and
Kroger over the treatment of sows. Yet Mr Icahn also considers
himself a vanishing breed. “Activism is dying,” he laments.
Not on paper. In the first quarter of the year activists launched
73 campaigns, the busiest three months since Lazard, an advisory
firm, began keeping track in 2014. This week Bluebell, a newish ac
tivist fund based in London that made its name last year by oust
ing the boss of Danone, a struggling French yogurtmaker, set its
sights on SaintGobain, another icon of France sa. Still, Mr Icahn
has a point. Activism isn’t what it used to be.
Activist investing, simply defined, involves buying a stake in a
company, then pushing for change. Activists might urge a firm to
boot out its boss or sell a subsidiary, say, in the hope of driving up
the share price. Mr Icahn became an activist to correct what he
deems a broad failing of corporate boards to oversee management.
“I’m no genius,” he says, “but I made billions and billions of dol
lars from this crazy system.”
In making their billions and billions, activists would pair fi
nancial acumen with ferocious insults, hurled mostly at compa
nies but sometimes also at each other. After Bill Ackman of Persh
ing Square, a hedge fund, bet against Herbalife, Mr Icahn invested
in the multilevel marketing firm. In a notorious televised spat be
tween the two of them in 2013, Mr Icahn called Mr Ackman a “cry
baby” and declared, “I wouldn’t invest with you if you were the last
man on Earth.” Activists’ open letters to firms are only slightly
more temperate. “Years of value destruction and strategic blun
ders”, Daniel Loeb of Third Point, another fund, wrote to one boss
in 2005, “have led us to dub you one of the most dangerous and in
competent executives in America.” In 2018 Third Point’s quest to
sack the board of Campbell Soup included a video in which thecompany’s famous jingle morphed from “mmm, mmm, good” to
“mmm, mmm, BAD”.
For ceos, such antics pose a headache at best, requiring expen
sive lawyers, bankers, proxy advisers and publicrelations gurus.
Targeted bosses have occasionally struggled to keep their cool. In
2017 Arconic, an industrial firm, faced a campaign from Paul Sing
er’s Elliott Management. Klaus Kleinfeld, Arconic’s chief execu
tive, wrote a letter alluding to a raucous trip to the World Cup and
suggesting that Mr Singer might have performed “Singin’ in the
Rain” in a fountain. Mr Kleinfeld resigned soon after.
In the past few years such altercations have grown rarer. That is
partly because there are plenty of newcomers who lack the old
guard’s abrasive ways—even if some, such as Politan or Mantle
Ridge, were founded by alumni of the veteran funds. Firsttime ac
tivists accounted for 25% of the campaigns launched in the first
quarter, according to Lazard, up from 17% in 2019. But some veter
ans, too, are mellowing with age. In March Mr Ackman declared
that his firm had retired permanently from activist shortselling,
which he called the “noisiest form of activism” (unsurprising, per
haps, given his volatile record on such gambles). Elliott has built a
buyout arm, so it can take companies private rather than simply
badgering them in public. In March it helped lead a consortium to
acquire Nielsen, a data company, for $16bn.
Activism is, in other words, becoming if not dull, exactly, then
more subtle. Many activists are choosing to operate quietly, push
ing a company’s board in private and preserving the ability to
grumble in public if the board resists. “Several years ago, when ac
tivism was a narrow asset class, the personalities were as big a fo
cus as the actual substance of the campaigns,” says Avinash Meh
rotra of Goldman Sachs. Now Mr Mehrotra reckons that for every
public campaign on which the investment bank advises a compa
ny, it is working on four to five times as many private ones. Poli
tan’s campaign last year at Centene, a health insurer, had little
press coverage before an agreement was announced to replace the
firm’s boss and add new board members. In quiet campaigns, says
another activist investor, the public sees no engagement followed
by the “kumbaya” result. Even Mr Loeb has adopted a new tone. He
wants Amazon to spin off its cloud business; in a letter in February
he praised “Amazon’s talented and focused new ceoAndy Jassy”,
seeming less inclined to kick Mr Jassy’s backside than to kiss it. The risk of rewilding
Just as activists are becoming less confrontational, though, regu
lators are turning more so. Although America’s Securities and Ex
change Commission (sec) is making it easier for investors to elect
their candidates to corporate boards, in other ways the stock
market watchdog is making activism harder. A new definition of a
“group” would limit activists’ ability to make their case to other
shareholders. Another rule would require quick disclosure of
ownership of derivatives, which could push up the target’s share
price, sapping the incentive to build a large stake. Tellingly, the
proposals are supported by corporate lobbies such as the Business
Roundtable. Elliott, in comments filed to the sec, warned that the
rules would “virtually shut down activism”.
That would be too bad. Research shows that activism lifts re
turns for activists and longterm value for other shareholders.
Robert Eccles of Saïd Business School and Shivaram Rajgobal of
Columbia Business School have told the secits rules would leadto
“less value creation, worse governance, and more acrimonyat
public companies”. No one wants that—least of all the gadflies.nSchumpeter
Activist investors are becoming tamer. They must not become extinct