CEOs stalking shareholders

David Sirota describes how CEOs are spying on "activist" shareholders.

The Financial Times reports that "U.S. companies, alarmed by the number of activist investors on the prowl, are hiring surveillance firms to find out who their shareholders are and which ones might cause trouble." Let's state it another way: company management is now going all out to indentify – and perhaps target with retribution/harrassment? – the owners of the company themselves (aka. the stockholders) if those owners are expected to "cause trouble."

If corporations are legal persons, spying CEOs must be an autoimmune disease.

Comments

[The Phantom]

Yeah, but....

Shareholder can mean some stoonad " activist " get a life guy who buys one share and expects to take the floor at the shareholders meeting.

There is a big difference between a legitimate shareholder who wants to improve the investment and an activist phony. If the corporations that I invest in want to keep an eye on these one-share frauds who hope to gain a soapbox, more power to them.

[Lindsay Beyerstein]

The "activist" has just as much right to take the floor as anybody else. That's the beauty of capitalism. There are no phony shareholders, there are just shareholders.

[The Phantom]

Yes, but some schmuck with one share, who only bought it so as to have a platform, is not to be thought of in the same category as a legitimate stakeholder ( employees, managers, legitimate investors )

There has been a real problem in Japan where criminals buy one share in order to attend shareholder meetings . The end result is often a blackmail payment.

" Activists " here are not much different than the yakuza scammers. They want their payoff too.

If I find that any of my investments are keeping an eye on one-share scammers, I will congratulate them in writing.

[Neil the Ethical Werewolf]

Some of these guys aren't one-share types. Take CalPERS, the California retirement system, which is an enormous socially responsible institutional investor.

[SL]

Shareholder can mean some stoonad " activist " get a life guy who buys one share and expects to take the floor at the shareholders meeting.

Posted by: The Phantom | December 11, 2005 at 12:07 PM

There is illegitimate investor now? It's just too bad is it, those companies are public companies. So either they have to face the public or turn to private funding.

can't have it both ways.

[Trystero]

Phantom: How many shares do I have to buy to be a legitimate investor? Five? 100? Just wondering.

[The Phantom]

One share makes you a legitimate investor if your primary purpose is to make an --investment--. If your purpose is to bust the management's balls, then by my definition, you are not an investor at all. You're a gadfly. Does not make you a bad person, but you are not a serious investor.

[Haida]

That's ridiculous. Often there are share minimums as to the number of shares which can be purchased in companies whose public offerings are extensive. If a company allows investors to buy "one share" then that purchaser is now an investor and entitled to be properly represented and to protect the investment. All shareholders are entitled to exercise their franchise in accordance with the class of shares they hold. A shareholder, regardless of the number of shares they hold, can be as active in the company as the share class, constitution and bylaws permit.
"Activist" investors can make forward any resolution they wish, which includes the right to speak to that resolution at an Annual or Special shareholders' meeting. If the resolution has no merit, in the view of the other shareholders, it will not carry when put to a vote.
If I buy a minimum number of shares with a view to "busting management's balls" that's entirely my right. Since votes are based on the number of shares each shareholder possesses, a minor shareholder would have to gain the support of enough voting shares to succeed. If that happens, then the majority of the holders of the company were in agreement. That's not a gadfly. That's a legitimate voice.

[Trystero]

Phantom: But what if I buy half the shares because I want to bust management's balls? Surely the majority shareholder has the right to whatever he wants with the company. Where in the span of "1" share to 50% do I gain the right to bust management's balls just because I'm feeling ornery?

[paperwight]

Actually, Phantom is making an implicit distinction between "shareholders who bust management's balls in a way that Phantom LIKES" and "shareholders who bust management's balls in a way that Phantom DOESN'T LIKE".

For example if a shareholder bought one share to protest management's raking off profit for themselves instead of distributing it to the shareholders, that would probably be OK with Phantom. But a shareholder who buys a share and then protests a policy that externalizes costs from the company, that Phantom doesn't like.

So the line isn't how many shares one has or whether one is within one's rights as a shareholder, it's whether Phantom thinks you're a "serious investor". It's the exact corollary to the First Amendment according to the current Republican Party: you should only have free speech until you disagree with them, and then you've crossed the line.

[almostinfamous]

If corporations are legal persons, spying CEOs must be an autoimmune disease.

you mind if i quote this, repeatedly?

[The Phantom]

Paperwright
--If a shareholder bought one share to protest management's raking off profit for themselves instead of distributing it to the shareholders, that would probably be OK with Phantom.--
Now, lets not be silly. Its unbecoming.

The Phantom is of the opionion that corporations exist primarily to make money for the shareholders --not the management to any unfair degree -- but that this must be done in a way that takes into account the interests of the stakeholders, including the employees ( who increasingly are shareholders ) the community, the nation, etc.

Neil mentions Calpers, which is a good point. I disagree with Calpers sometimes myself, and think that they can be very short term oriented, but their legitimacy can't be questioned. They represent many people, theirs is a huge investment.

My point is that some phony "activist" who buys one share, who is an investor only in the Clintonian sense, should be thought of only in proportion to the value of his investment. And if the corporation wants to keep an eye on people like that, incl those who hoot and holler at meetings, then more power to that corporation.

[William Sherman]

There is no law against one person investigating another.
Upper management only keeps an eye on those stockholders they think will potentially interfere with their agenda for the company, an agenda which can include lying to the shareholders and Wall Street about profits and policies in order to keep the stock price inflated so that the CEO and others can cash out and bail with maximum profit when the time comes. Just two of many, many examples: Enron and Providian. A CEO's first thought is often not of stockholder's interests-- it is their own interest and secondarily that of their cronies. CEO's must be watched closely. Bring on the minority shareholders' views for our consideration. Some stockholders conduct their own investigations of upper management and air the odious facts to all concerned. The presentation of diverse points of view at stockholders' meetings is, overall, a healthy one for the company and the stockholders.

I own 7 stocks now and have owned many different stocks over the years. There is no rule that says your voice may be heard at stockholders' meetings only after a minimum stock purchase-- just the opposite, a stock purchase gives you a legal right to have your voice heard. I am sure that CEO's would just love to have the power to ban stockholders whose opinions differ from their own. With this power Eisner would still be CEO of Disney and many other CEO's who needed to go would still be running their companies into the ground.

[dan]

I wonder what the Phantom thinks of the Time Warner/Icahn fiasco in the making. Icahn's longstanding policy (still awfully lucrative) is to find a company where he believes management is destroying shareholder value, buy a substantial position, and try to make enough trouble that either a new management team is put in power (exceedingly unusual), management bows to his suggestions (very unusual) or management essentially bribes him to go away (more difficult, but not impossible, and what usually happens). Posit, for the sake of the question, that Icahn is right that spinning off a couple of divisions would be far more profitable (which I happen to think is right in this case, but for purposes of the thought experiment, it doesn't matter). Presumably the point of spying on/investigating irritating shareholders is to find something embarrassing or damaging so that management can shut them up without paying them off. To me, that's got nothing to do with shareholder value; no PI is going to find out that Icahn's proposals are dumb, but a P.I. might find out that Icahn has some skeletons in his closet (maybe Icahn isn't a great example of this; he's been pretty open about the skeletons in his closet, but again, it's a thought experiment). To me, that's just another example of management's incentives being misaligned with those of shareholders.

Any company investigating some guy who buys a share to irritate people at the annual meeting is clearly wasting money, and I sincerely doubt that's what's going on. You don't bother intimidating people unless they've got something on you. If they've got something on you, it's because you're mismanaging the company...

[dan]

"If your purpose is to bust the management's balls, then by my definition, you are not an investor at all. You're a gadfly. Does not make you a bad person, but you are not a serious investor."

that, needless to say, is preposterous. A lot of money has been made busting management's balls, and anyone who doesn't understand the discrepancy between the incentives of capital and the incentives of management...well, for one thing you've got to be awfully confused about what's happened to American stock valuations in the last few years. I sort of started paying attention to this thread midway through, when the Phantom was apparently being backed into a more reasonable position. Anyway, I take back my claim about wondering "what the Phantom thinks...," and apologize to the board for potentially feeding a troll.

[Thomas]

The Phantom, who inexplicably refers to himself in the third person, is apparently unfamiliar with the financial sophistication of socially responsible investor. Those funds and money managers often do take an activist stance in proposing and supporting resolutions, but they are hardly one-share gadflies. Instead, they are serious financial professionals with responsible strategies designed to make money for their clients and holders. I know many folks in that community, and any idea that they are crackpots or attention-seekers is fundamentally wrongheaded.