Board members at major companies forcibly replaced by billionaire hedge funds - fascist groundwork or shock doctrine?
Thinking about Trump’s event at Madison Square Garden, and taking a side journey:
The non-executive chairman of MSG is Nelson Peltz who owns Trian. Trian is one of those activist investment companies that forces its way onto boards by buying up enough stock to shake up the executives with their demands. (Pelz incidentally claims to be a centrist (“life long friend and supporter of Joe Manchin”) but he was a heavy supporter of George W Bush, Trump’s first term and recently admitted to supporting Trump over Biden, when Biden was running.)
Trian famously tried to get a seat on the board at Disney and wanted Bob Iger out. A distinction is made in this Harvard article between Trian specializing in ‘value destruction’ versus successful CEOs (namely, Robert Iger but also Steve Jobs, which it calls “generals”) who specialize in ‘value creation’. What kind of value destruction? It takes a few forms.
Like an alien latching on and then devouring from the inside, sometimes these activist firms subsequently insist on selling the ground or buildings out from under the target companies to REITs (often private ones), often using part of the money for stock buybacks, and then leasing back those same assets perhaps at some elevated rates for decades to come.
“Activist investors” sometimes use tactics that verge on a shakedown or a white collar terror campaign. Southwest just got forced by Elliott Investment Management to replace 6 of its board members with 5 Elliott-selected individuals, and to speed up the exit of their chairman. Starbucks was another one with a CEO replacement. There were dozens more in the last year. It reminds me of the Shock Doctrine: create a feeling of a crisis, drive panic and fear, and use it to implement a strategy by which you will profit.
Elliott is also the one that pushed Twitter CEO Jack Dorsey out on a ledge. They claim to take unprofitable companies to profit, but in the case of Twitter, we all can see what has resulted. That seemed a different kind of value destruction.
In the case of offloading assets to REITs: Whether you pay a mortgage on your residence or a lease payment seems the same in the short run (and of course you may find better uses for that capital), and what it means in the long run is debatable. But if your reason for existence as a company depends on those assets, well, you’ve been forced to indebt yourself all over again — not to a random bank, but to well-connected private equity REIT that effectively gets the most preferred seat in the house. After all, a substantial fortune 500 company won’t default on the rent for a very long time. Or at least you can sell it to investors that way.
Circling back on topic, I would like to remind everyone that when Leonard Leo received $1.6 billion — the largest ever dark money donation — from Barry Seid, little Leonard said that he was going to use it to launch his new project to transform corporate boards, the way he had succeeded in transforming the courts. These activist hedge funds have far more assets to play with than that, but I do wonder how much they are linked. I can find public writings where the hedge fund managers complain that companies have too much focus on ESG initiatives or on employees. To some extent, corporations were a moderating influence during the Trump administration.
This is not an ignorable side problem for anyone. There was a DU thread on private equity buying up home service companies such as plumbers, repairman, constructors. There was another DU thread on private equity companies buying hospitals, stripping them of resources, selling the buildings or land, having the hospitals end up closed, leaving communities desperately subsidizing them just to maintain health and emergency services in the community. (Incidentally, the stability of our real hospital system seems so weak, and I have been noticing all these little two-bit “emergency rooms“ popping up in strip malls of major cities that I’ve lived in, that frankly seem so wildly inappropriate that they should possibly be banned. People who don’t know any better might bring their loved one with a major head injury or a stroke to a place that should only be handling bandages and sprained ankles.)
I’d like to think that Kamala and the Democrats can tackle these problems if we win the house and senate too, but I’m realistic that they will have their hands full.. Courts and corporate boards can be a formidable opposition. I’m disturbed to think about how many pieces on the chessboard that the fascists have already won.
I’m even more disturbed at the challenge of how to build understanding of what’s happening in the American public. Even in 10% or 20%. But most of the public can’t begin to understand or maybe isn’t interested. Their children will be relegated to serfs and underpaid lackeys, indentured servants with opportunities so restricted by predators who control everything in their lives, from consolidated media outlets to poorly run hospitals to employers who can treat them like disposable cardboard.
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Response to Orrex (Reply #27)
