Media jury still hung on whether activist hedge funds are part of the solution or part of the problem
Last month, The Wall Street Journal published its Activist Investor Report Card, a study of 71 activist campaigns at large companies since 2009. The study aimed to measure whether activists are good for business. The conclusion? “Activism often improves a company’s operational results—and nearly as often doesn’t.” The Journal says that the best corporate response to activism is to analyze the proposal and the track record of the activist making it. Some research.
Not to be outdone, The New York Times published a report on activism in November, complete with its own infographic, Short-Term Thinking. The conclusion? Activists hold stocks longer than people think and the the market would be a better place if everyone had a long-term investment horizon. No wonder people don’t want to pay for news.
In April, this blog noted that media are trying to paint a more holistic picture of activism by asking the key question of are these guys good for the system? As the Journal and Times studies show, the media are undecided on whether activist hedge funds are a productive, corrective force in the capital markets. Part of the problem is that scoring activist success and failure is not the right metric.
There is disconnect in the media between the big picture of activism and the headline grabbing confrontations between activists and corporations. But the media must begin to connect the dots. In the same report on activism, the Times also has a story on corporate governance, saying there is little consensus about what constitutes good governance. Issues like dual class share structures create a world of “haves and have-nots of corporate governance,” writes the Times. 14% of IPOs in the US this year are dual class, compared to 1% in 2005.
How can it be that on the important issue of one share one vote, corporate governance is backsliding and the media continue to be lukewarm at best on activists? Activism is about doing the hard, risky work no one else wants to do. The media need to understand that and acknowledge that there is work in our markets that is uniquely suited to hedge funds..
In discussing a hedge fund lawsuit against the federal government over the ownership of Freddie Mac and Fannie Mae, Bethany McLean, the journalist who uncovered the fraud at Enron, acknowledged the important role hedge funds can play. “It takes someone with a lot of money and ad a lot of power to sue the US government. I think it’s fantastic that we have a group of people who are willing to shine a light on the government’s actions. That’s a value. The transparency that hedge funds can provide is a huge value, not something we should be seeking to get rid of.”
The media need to understand that activism is about much more important than wins and losses. It’s about creating a marketplace of ideas, being a counterweight to corporations and a channel for asset managers to engage with companies about performance. While not all activism is about corporate governance (particularly the recent spike in buyback campaigns), who if not activists will hold companies accountable for governance? Are activists good for the system? If you look at the big picture, the answer is yes.