Wake up and small the coffee
It’s not every multi-billionaire that makes time to run a blog, so when the 46th richest person in the world decides to share his thoughts on the subject that has earned him those billions (14 and counting), it’s worth paying attention.
Carl Icahn is generally referred to as an “activist shareholder”. This means he buys shares in what he considers to be underperforming companies, then uses his influence as a shareholder to put pressure on the management of said companies to raise their game. If successful, this will raise the price of the shares and earn Icahn a profit when he subsequently sells them.
That, ladies and gentlemen, is the free market at work. And that’s a good thing. What people forget is that all public companies were once private companies whose owners decided to sell to the public – hence the name – in order to raise funds. The trade off for all this cash is that they no longer own the company, the shareholders do, and now the board of directors is effectively employed by the shareholders and is beholden to it.
The thing is, the vast majority of shareholders are either tiny stakeholders or institutional investors like pension funds, that lack either the ability or inclination to try to influence the management of the company they own a piece of, even though it’s in their interests to do so. This means that the senior management of most public companies can usually count on very little interference from shareholders unless they start really screwing things up, by which time it’s often too late.
Why buy shares in a company and merely hope it does well when you can go one step further and ensure it?Icahn is almost unique in wanting to be an active rather than passive investor. Why buy shares in a company and merely hope it does well when you can go one step further and ensure it?
Of course, most executive boards think they’re doing a perfectly good job already and tend not to take too kindly to some outsider suddenly buying a bunch of stock and telling them how to run ‘their’ business, so this often ends in tears.
In the case of Yahoo! recently, Icahn decided to initiate a proxy fight. This is a mechanism for lobbying shareholders to vote to depose the incumbent board and replace them with a new slate, which will inpliment the changes to the company the incumbents had refused to.
The proxy fight was due to culminate tomorrow at a shareholders meeting but was averted when Icahn and the board agreed on a compromise in which the board got to keep their jobs in return for giving Icahn and two of his nominees seats on the board. This means they have to run decisions past Icahn from now on.
