Stealing From the Devil's Playbook: A Blue Print for Investor Domination

At their most fundamental level(3).png

It's said that the greatest trick the devil ever pulled was convincing the world he didn’t exist.   He's not the devil of course, but I suspect Carl Icahn and his fellow activists have read the playbook.

Management are "rotten", mutual and pension funds are "lazy" and bosses "clubbable".  That's the framing for a recent article entitled Capitalism’s unlikely heroes: Why activist investors are good for the public company.  No, this isn't a hedge fund press release- it's surprisingly a work of journalism.  

February is "hero" month at The Economist.   Around this time last year, the same newspaper wrote a set-up piece called How activist shareholders turned from villains into heroes.    This year they've delivered the punchline.

But calling activists heroes is no joke to Yvan Allaire, Executive Chair at the Institute of Governance, who believes The Economist is running infomercials for activist hedge funds:

"On a topic requiring sober, balanced coverage, The Economist cuts logical corners, tramples contrary evidence, ignores a vast store of scholarship, and conjures up an empirical “study” to produce misleading data."

Inexplicably, journalists appear to have joined scholars in promoting what is just a money making venture.  How a paper that sells itself as taking "part in a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progresshas ended up on the wrong side of intelligence is remarkable.  

But this is Icahn and his fellow activists' greatest trick.  To conceal their strategy to dominate capitalism in plain sight.

The conceit of corporate governance heroics hides the truth that activists only compete for money once it's made.  

Samsung and Apple fight for the customer with risk-fraught strategies.   But when the dollar's won, the activist attacks Apple for the spoils.   There's nothing noble about buying shares on-market and then crying mismanagement for profit.   Nor are common activists particularly courageous.  The fact they're called "hedge" funds is a good gauge of their commercial bravery.   

At their most fundamental level, activists are not heroes but a company's coldest competitors.   Waiting off-registry for the value to be created then exploiting the cover of failed governance and questionable academic research to help themselves to the opportunities created by so called "mismanagement". 

But whatever you may think of the ethics, shareholders competing for the wealth of companies is neither unlawful or wrong.   It's just their business model.   Affectionately described by the Economist in these terms:

"Instead of loading up on debt to finance the takeover of entire firms, they get the work done with a stake of, typically, just 5% or so. That means activists are good value because they use less debt, pay no takeover premium and extract far lower absolute fees."   

Some businesses figure out how to sell technology for value.  Other businesses buy shares and try and figure out how to use them to take value for themselves.  In the end, they're both just business.  The only difference is how they choose to make money.  One through hot competition in the market.  The other through cold competition within the firm.

Corporations are filled with cold competitors from employees to managers, to suppliers who wage a sort of cold war for the firm's scarce resources.   The key to every successful business is knowing when it's in the firm's interest to push back and when to fold to a cold competitors demands.   Not out of duty or responsibility but out of the firm's self interest properly understood.

The problem with cold competition is that it's no fun when the contest becomes so one-sided that the firm - and every other stakeholder - is guaranteed to eventually lose to one competitor.

How the playing field was tipped so radically in favour of activists and investors trying to take value is the subject of a twelve part series written over 2014/15.  Each part exploring a different strategy used by the investment industry to win over the public in their PR campaign that has redefined capitalism.

The purpose of the Marketing MSV Series is to help return a bit of balance by providing the insights directors and regulators need to go head-to-head with activist and investor business models.  

But with hundreds of billions in funds at their disposal, activists aren't going to give up easily.  And nor should they.   Every business has the right to win and lose on a level playing field.  To even things up, here's a list of the twelve techniques that are giving activists the edge over corporations.  After all, it's better the devil you know.

TWELVE WAYS TO HAck the corporation

(and not get noticed)

Get Them Young

Teach business students that the goal of business is to maximise shareholder value

Read more

Stay On Message

Mould public opinion by repeating the three core messages of shareholder value consistently throughout the media and across all platforms.

Have journalists act as if they were under a duty to maximise shareholder value.

Read more about staying on message

Win Their Hearts

Associate shareholder value with broader societal values - democracy, property rights and accountability.

Read more on the linguistic strategies used by the investment industry.

Play Mind Games

Use psychological techniques to promote the goal of maximising shareholder value and suppress discussion of alternatives.

Read more to learn what shareholder primacy has in common with the psychological phenomena of groupthink.

Lose Their Minds

Have sympathetic friends in universities who act as if under a duty to maximise shareholder value

Read more on the curious relationship between Wall Street and the ivory tower.

Exploit a Little Truth

Imply that investors bankroll capitalism when nothing could stretch the grain of truth further.

Argue that because shareholders own something that means they own everything.

Available April 2015

Make it Personal

Create the impression that shareholders are people when the overwhelming number are corporations that buy and sell shares as part of their business model.

Available May 2015

Change the Law

Change the law to give the investment industry a competitive advantage over other industry segments

Available May 2015

Re-frame the Problem

Appear on the side of long-term value creation when that's not the real problem.   

Available June 2015

Divide and Conquer

Pit managers and directors against each other

Available July 2015

Open New Markets

Encourage investment industry serving "good governance" in new and emerging markets throughout the world

Available August 2015

Use Fear as a Last Resort

Create fear that if companies act in anyone but the shareholders' best interest, capitalism will collapse.

Available September 2015


AICD Discovers "Good" Governance is a Team Activity

2003 - The Living Board