INTRODUCTION
1. Jimmy Greenfield, 100 Things Cubs Fans Should Know Before They Die (Chicago: Triumph Books, 2012), 66.
2. All these number are from court filings in Appellate Court of Illinois Case #51750, Shlensky v. Wrigley.
3. Johan Matthijs de Jongh, “Shareholder Activists Avant La Lettre: The ‘Complaining Participants’ in the Dutch East India Company, 1622–1625,” in Origins of Shareholder Advocacy, edited by Jonathan G. S. Koppell (New York: Palgrave Macmillan, 2011), 61–87.
4. Ross Perot, speech to the General Motors board of directors, November 4, 1985.
5. Alice Schroeder, The Snowball: Warren Buffett and the Business of Life (New York: Bantam Books, 2008), 486.
6. Steven M. Davidoff, “Nader, an Adversary of Capitalism, Now Fights as an Investor,” New York Times, DealBook, January 14, 2014.
7. Steve Fishman, “Get Richest Quickest,” New York, November 22, 2004.
8. William “Mickey” Harley, letter to Nelson Marchioli, Denny’s CEO, and Charles Moran, Denny’s chairman, February 23, 2004. Mickey signed the letter, but I wrote it with sensible input and editing from my direct boss, Greg Shrock.
9. Warren Buffett speaking at Berkshire Hathaway Shareholders’ Meeting, 1998.
1: BENJAMIN GRAHAM VERSUS NORTHERN PIPELINE: THE BIRTH OF MODERN SHAREHOLDER ACTIVISM
1. Benjamin Graham: The Memoirs of the Dean of Wall Street, edited by Seymour Chatman (New York: McGraw-Hill, 1996), 200.
2. Ibid., 200: “They were duly brought me, and I soon found I had treasure in my hands.”
3. John H. Armour and Brian R. Cheffins, “Origins of ‘Offensive’ Shareholder Activism in the United States,” in Origins of Shareholder Advocacy, edited by Jonathan G. S. Koppell (New York: Palgrave Macmillan, 2011), 257.
4. “Cent. Leather Proxy Fight,” New York Times, January 31, 1911.
5. Armour and Cheffins, “Origins of ‘Offensive’ Shareholder Activism,” 257.
6. T. J. Stiles, The First Tycoon: The Epic Life of Cornelius Vanderbilt (New York: Vintage Books, 2010), 439, 449–65.
7. Jones is commonly credited with starting the world’s first hedge fund in 1949. Graham founded Newman & Graham in 1936. Alice Schroeder, The Snowball: Warren Buffett and the Business of Life (New York: Bantam, 2008). Newman & Graham, like A. W. Jones, had a limited number of partners, paid a performance allocation, and employed shorting and hedging strategies. See Benjamin Graham: The Memoirs, 268.
8. Benjamin Graham: The Memoirs, 180.
9. Regarding the “investment partnership”: Technically Graham-Newman was a corporation. When the IRS questioned the tax status of the Benjamin Graham Joint Account, Graham’s accountant recommended they incorporate to avoid further taxes if they were later determined by regulators to be a corporation. See Benjamin Graham: The Memoirs, 268. According to Joe Carlen, Graham’s average annual performance was 17.5%, versus 14.3% for the S&P. Also, when the fund liquidated, investors got GEICO stock, which did well. Joe Carlen, The Einstein of Money: The Life and Timeless Financial Wisdom of Benjamin Graham (Amherst, NY: Prometheus Books, 2012), 262.
10. The annual return figures come from the memo “47 Year Results of Walter & Edwin Schloss Associates,” memo, Walter Schloss Investing Archive, Heilbrunn Center for Graham & Dodd Investing, Columbia Business School, New York.
11. Benjamin Graham, The Intelligent Investor (New York: Harper, 1973), 107: “[T]he investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.”
12. Ibid., 109.
13. Ibid., 281.
14. John Micklethwait and Adrian Woolridge, The Company: A Short History of a Revolutionary Idea (New York: Modern Library, 2003), 62.
15. Ibid., 62.
16. Benjamin Graham: The Memoirs, 142.
17. Ibid., 142.
18. Ibid., 143.
19. The title of The Intelligent Investor is a nice example of Graham’s scholarly nature. While the publisher has updated the subtitle several times (“The Classic Text on Value Investing” to “The Classic Bestseller on Value Investing” to “The Definitive Book on Value Investing”), Graham’s original subtitle was simply “A Book of Practical Counsel.”
20. Benjamin Graham: The Memoirs, 200.
21. Ibid., 201.
22. Ibid., 203.
23. Ibid., 207.
24. He wrote the letter with Bob Marony, who was a shareholder and director of Graham-Newman. Graham met Marony in 1919 when he was analyzing the Chicago, Milwaukee & St. Paul Railroad. He ended up writing a research report saying that the St. Louis & Southwestern Railroad was a much more attractive buy. Marony was the financial vice president of the Chicago, Milwaukee & St. Paul, but he did not disagree with Graham’s assessment. The two men became friends and began to share investment ideas. Marony knew Bertram Cutler and Tom Debevoise personally. After receiving Graham’s letter, Cutler wrote a note to Debevoise about Marony, “. . . [H]he is going to be a nuisance I am afraid.”
25. Benjamin Graham: The Memoirs, 210.
26. Ibid., 211.
27. Joe Nocera, “The Board Wore Chicken Suits,” New York Times, May 27, 2006.
28. Leonard Marx, letter to Warren Buffett dated April 15, 1957, Walter Schloss Investing Archive, Heilbrunn Center for Graham & Dodd Investing, Columbia Business School, New York.
29. This is a rite of passage for value investors—holding on to a position even after people with more information tell you how you would sell the stock if you only knew what they knew.
30. I cross-referenced the director names in the proxy mailings with the ICC employee list. The assertion about “affiliated directors” is from Benjamin Graham: The Memoirs, 211.
31. Jonathan Macey discusses Federalist No. 10 in his inaugural lecture as the Sam Harris Professor of Corporate Law at Yale Law School, October 9, 2006. Jonathan Macey, “Where’s the Theory in Corporate Governance?,” https://itunes.apple.com/us/itunes-u/corporate-law/id387940792?mt=10, released August 6, 2007.
32. Thomas Debevoise’s son Eli Whitney Debevoise cofounded Debevoise & Plimpton in 1931. The General Education Board was a philanthropic organization started by John D. Rockefeller Sr. His donations to the board in the early twentieth century were, at that time, the largest philanthropic donations in the history of the United States. Quotation from Thomas M. Debevoise, letter to Wickliffe Rose dated April 16, 1925, Folder 181, Box 18, Rockefeller Family Collection, Rockefeller Archive Center.
33. Northern Pipeline proxy mailing dated January 12, 1928, Folder 912, Box 121, Rockefeller Family Collection, Rockefeller Archive Center.
34. See Robert A. G. Monks and Nell Minow, Case Studies: Corporations in Crisis, June 30, 2011, http://higheredbcs.wiley.com/legacy/college/monks/0470972599/supp /casestudies.pdf, 84–85. The justification for building the museum was that it would generate goodwill and name recognition for Occidental. Time’s review? “Most of it is junk.” The $150 million figure comes from a shareholder filing. Even if that estimate is too high, the original guidance in Occidental’s proxy was $50 million plus $24 million of future funding.
35. Lucian A. Bebchuk and Jesse M. Fried, Pay Without Performance: The Unfulfilled Promise of Executive Compensation (Cambridge, MA: Harvard University Press, 2006), 113.
36. Countrywide was of course bought by Bank of America. ABN-Amro was bought by a consortium led by Royal Bank of Scotland, Fortis, and Banco Santander. Not long after dividing up the assets, both RBS and Fortis were pushed to insolvency by ABN-Amro’s liabilities.
37. There’s been a lot of research on this phenomenon, most recently Michael Mauboussin and Dan Callahan, “Disbursing Cash to Shareholders: Frequently Asked Questions About Buybacks and Dividends,” Credit Suisse report, May 6, 2014, http://www.shareholderforum.com/wag/Library/20140506_CreditSuisse.pdf.
38. Winn Dixie paid hefty dividends for many years prior to its bankruptcy and woefully underinvested in its stores.
39. Within seconds of descending into the cave, you also had to contend with an army of annoying salesmen telling you about incomprehensible features like Dolby noise reduction.
40. Benjamin Graham: The Memoirs, 205.
41. The Rockefeller Archives have no minutes of meetings with Northern Pipeline, but there are some documents regarding later distributions that refer back to previous discussions with Northern Pipeline management.
42. Benjamin Graham: The Memoirs, 187.
43. Schroeder, Snowball, 186.
44. Graham, The Intelligent Investor, 269.
45. Berkshire Hathaway annual letters, 1976 and 1996. The 1976 number takes equities at cost and adds $45.7 million in unrealized gains.
46. This assumes exercise of its option to purchase Bank of America shares.
47. Benjamin Graham: The Memoirs, 208. dsgsg46. This assumes exercise of its option to purchase Bank of America s
2: ROBERT YOUNG VERSUS NEW YORK CENTRAL: THE PROXYTEERS STORM THE VANDERBILT LINE
1. Joseph Borkin, Robert R. Young: The Populist of Wall Street (New York: Harper & Row, 1947), 50.
2. Ibid., 50. The original Alleghany block was 43%, so 41% of the remainder is slightly over 70%.
3. Matthew Josephson, “The Daring Young Man of Wall Street,” Saturday Evening Post, August 18, 1945.
4. David Karr, Fight for Control (New York: Ballantine, 1956), 99.
5. DJIA promotional flyer, Dow Jones Indexes, December 31, 2011, http://www.djindexes.com/mdsidx/downloads/brochure_info/Dow_Jones_Industrial _Average_Brochure.pdf.
6. Karr, Fight for Control, 93.
7. J. C. Perham, “Revolt of the Stockholder,” Barron’s, April 26, 1954.
8. Connie Bruck, The Predators’ Ball: The Inside Story of Drexel Burnham and the Rise of the Junk Bond Raiders (New York: Penguin, 1989), 157, and Mark Stevens, King Icahn: The Biography of a Renegade Capitalist (New York: Dutton, 1993), 96. Also, the Alamo and bat incidents weren’t actually simultaneous.
9. Borkin, Robert R. Young, 178. Young spent $1.3 million, New York City spent $900,000.
10. Robert Young, letter dated April 8, 1954, Robert Ralph Young Papers (MS 1738), Manuscripts and Archives, Yale University Library.
11. Robert Young, unfinished memoirs, Robert Ralph Young Papers (MS 1738), Manuscripts and Archives, Yale University Library, 4. I changed some unnecessary capitalizations.
12. At Equishares, Young immediately became frustrated with Raskob’s weakness for speculative investments. While Young was bearish on equities—he even persuaded Du Pont to move $15 million of his personal holdings out of stocks in June 1929—Raskob piled into the frothy market with abandon. Young later wrote, “These mistakes of Raskob’s were due largely to his unjustified faith in other men, coupled with an unquenchable bullish outlook. They were mistakes which I admired and loved him for. . . . At no time from October 1929 to March 1933 would he admit that the next month held promises of anything but a great boom.” Young, memoirs, 5.
13. Young, memoirs, 9–11.
14. Borkin, Robert R. Young, 35, 41.
15. Ibid., 98.
16. Ibid., 102.
17. Ibid., 108.
18. Ibid., 141.
19. Karr, Fight for Control, 11.
20. John Brooks, The Seven Fat Years: Chronicles of Wall Street (New York: Harper & Brothers, 1958), 6.
21. Ibid., 10.
22. Borkin, Robert R. Young, 142. The actual quote ends, “as chief executive officer, nor that the responsibility of management be divided.”
23. Ibid., 144.
24. Karr, Fight for Control, 7.
25. Borkin, Robert R. Young, 146.
26. Brooks, 7 Fat Years, 12. Also see Diana B. Henriques, The White Sharks of Wall Street: Thomas Mellon Evans and the Original Corporate Raiders (New York: Scribner, 2000), 133.
27. Karr, Fight for Control, 15.
28. Ibid., 32.
29. Borkin, Robert R. Young, 151, citing New York Times, February 16, 1954, 35.
30. Ibid., 154.
31. Ibid., 152. The full quote reads: “It’s a good bet . . . that as it goes, so goes the Central.”
32. Robert Young, letter to the New York Central shareholders dated March 5, 1954, Robert Ralph Young Papers (MS 1738), Manuscripts and Archives, Yale University Library.
33. Northern Pipeline proxy mailing, January 12, 1928, Series 87.1N3, Box 121, Folder 912, Business Interests—Northern Pipeline, Rockefeller Family Collection, Rockefeller Archive Center.
34. Borkin, Robert R. Young, 203.
35. Ibid,. 170, from Associated Press (AP) interview.
36. Ibid,. 151.
37. Ibid,. 137.
38. Ibid,. 171, from AP debate.
39. Ibid,. 171, from AP debate.
40. Ibid,. 196–97, citing New York Times, February 17, 1954.
41. Ibid,. 201.
42. Ibid,. 162.
43. Ibid,. 162.
44. Brooks, 7 Fat Years, 28.
45. Borkin, Robert R. Young, 202.
46. Karr, Fight for Control, 33–34.
47. Robert Young, letter to Henry Luce quoting Fortune article from May 1954, Robert Ralph Young Papers (MS 1738), Manuscripts and Archives, Yale University Library.
48. Brooks, 7 Fat Years, 25.
49. Ibid., 32.
50. Ibid., 32.
51. Ibid., 35.
52. Karr, Fight for Control, 111.
53. Robert Young, “Little White Lies,” proxy mailing, Robert Ralph Young Papers (MS 1738), Manuscripts and Archives, Yale University Library. For the Minneapolis & St. Louis, see Karr, Fight for Control, 109.
54. Karr, Fight for Control, 114.
55. “Soon-to-be-boss of North Western Collector of Two Kinds of Trains,” Toledo Blade, February 23, 1956.
56. “Business: Challenge to Management—The Raiders,” Time, July 25, 1955.
57. Henriques, White Sharks, 199, quoting Dero A. Saunders “How Managements Get Tipped Over,” Fortune, September 1955.
58. Ibid., 99.
59. Ibid., 172.
60. Karr, Fight for Control, 151.
61. His decline was dramatic. The SEC targeted him for stock manipulation at American Motors, as well as a stock-parking scheme at Merritt-Chapman, an investment vehicle he controlled. Wolfson’s public fall also brought down a Supreme Court justice, Abe Fortas, who had agreed to be a paid advisor of the Wolfson family foundation.
62. “Dissolution Approved by Merritt Chapman,” Milwaukee Journal Business News, May 11, 1967.
63. Henriques, White Sharks, 307.
64. Borkin, Robert R .Young, 223.
65. Perhaps the best investment he and his wife ever made was in her sister Georgia O’Keeffe’s artwork. Their collection included some of her most famous paintings and was auctioned off in 1987 for millions.
66. Borkin, Robert R. Young, 47.
67. Henriques, White Sharks, 243–44.
68. Ibid., 264.
69. Ibid., 206–7.
3: WARREN BUFFETT AND AMERICAN EXPRESS: THE GREAT SALAD OIL SWINDLE
1. L. J. Davis, “Buffett Takes Stock,” New York Times Magazine, April 1, 1990.
2. Warren Buffett, letter to Mr. M. Rubezanin, April 10, 1957, Walter Schloss Investing Archive, Heilbrunn Center for Graham & Dodd Investing, Columbia Business School, New York.
3. Appendix to Buffett Partnership Ltd., 1963 Annual Letter to Partners, January 18, 1964.
4. Ibid.
5. Buffett Partnership Ltd., First Half 1963 Update Letter to Partners, July 10, 1963.
6. Alice Schroeder, The Snowball: Warren Buffett and the Business of Life (New York: Bantam Books, 2008), 230.
7. Ibid., 232.
8. Ibid., 232.
9. Norman C. Miller, The Great Salad Oil Swindle (Baltimore: Penguin, 1965), 79–80.
10. Ibid., 90.
11. Ibid., 80.
12. Ibid., 81–83.
13. Ibid., 80.
14. Peter Z. Grossman, American Express: The Unofficial History of the People Who Built the Great Financial Empire (New York: Crown, 1987), 312.
15. Ibid., 312.
16. Miller, The Great Salad Oil Swindle, 88.
17. Ibid., 15.
18. Ibid., 16–17.
19. Ibid., 22–23.
20. Ibid., 23.
21. Grossman, American Express, 306.
22. Miller, The Great Salad Oil Swindle, 60–61.
23. Ibid., 104–5.
24. Grossman, American Express, 313.
25. Ibid., 309.
26. Miller, The Great Salad Oil Swindle, 82.
27. Ibid., 83.
28. Ibid., 83–84.
29. Ibid., 134.
30. Ibid., 179.
31. Ibid., 179–80.
32. Ibid., 163–68.
33. Ibid., 178.
34. Schroeder, Snowball, 558.
35. Ibid., 264.
36. Buffett Partnership Ltd., 1962 Annual Letter, January 18 1963.
37. Buffett Partnership Ltd., 1963 Annual Letter, January 18 1964.
38. Buffett Partnership Ltd., Partnership Letter, October 9, 1967.
39. Schroeder, Snowball, 260.
40. Ibid., 151.
41. “How Omaha Beats Wall Street,” Forbes, November 1, 1969.
42. Grossman, American Express, 327.
43. Ibid., 328.
44. Davis, “Buffett Takes Stock.”
45. Stanley H. Brown, Ling: The Rise, Fall, and Return of a Texas Titan (New York: Atheneum, 1972), 56.
46. Bruce Wasserstein, Big Deal: The Battle for Control of America’s Leading Corporations (New York: Warner Books, 1998), 58.
47. John J. Nance, Golden Boy: The Harold Simmons Story (Austin, TX: Eakin Press, 2003), 182–93.
48. Ibid., 202.
49. Ibid., 205.
50. Jim Mitchell, “The Inside Story of Harold C. Simmons from Huck Finn Looks to High-Rolling Investments,” Dallas Morning News, October 1, 1989.
51. Peter Tanous, “An Interview with Merton Miller,” Index Fund Advisors, February 1, 1997, http://www.ifa.com/articles/An_Interview_with_Merton_Miller.
52. Moira Johnston, Takeover: The New Wall Street Warriors (New York: Arbor House, 1986), 22.
53. John Brooks, The Go-Go Years: The Drama and Crashing Finale of Wall Street’s Bullish 60s (New York: Wiley, 1999), 238.
54. Ibid.
55. Ibid., 258–59.
4: CARL ICAHN VERSUS PHILLIPS PETROLEUM: THE RISE AND FALL OF THE CORPORATE RAIDERS
1. Mark Stevens, King Icahn: The Biography of a Renegade Capitalist (New York: Dutton, 1993), 133.
2. Ibid., 134.
3. Ibid., 150.
4. Ibid., 150.
5. Ibid., 159.
6. Bruce Wasserstein, Big Deal: The Battle for Control of America’s Leading Corporations (New York: Warner Books, 1998), 78.
7. Hostile takeovers were not by any means an invention of the 1980s. They were increasingly common through the 1960s and 1970s. In mistaken business lore, Inco’s ill-fated takeover of ESB in 1974 was the first major hostile takeover.
8. Connie Bruck, The Predators’ Ball: The Inside Story of Drexel Burnham and the Rise of the Junk Bond Raiders (New York: Penguin, 1989), 117.
9. Ibid., 169.
10. “US Bond Market Issuance and Outstanding (xls)—annual, quarterly, or monthly issuance to December 2014 (issuance) and from 1980 to 2014 Q3 (through November 2014),” Securities Industry and Financial Markets Association, accessed December 27, 2014, http://www.sifma.org/research/statistics.aspx.
11. Well, maybe the unwitting bondholders of Iceland’s banks.
12. Stevens, King Icahn, 168.
13. T. Boone Pickens, The Luckiest Guy in the World (Washington, D.C.: BeardBooks, 2000), 17–24.
14. Ibid., 31.
15. Moira Johnston, Takeover: The New Wall Street Warriors (New York: Arbor House, 1986), 53.
16. The buyout was more than 10% higher than where the stock closed the day before the announcement, and 30% higher than where it closed the day after.
17. While the raiders got most of the blame, my sympathies lie with them versus management. They owe their allegiance to their own shareholders and investors, not those of their target company.
18. Pickens, The Luckiest Guy in the World, 224.
19. Ibid., 229.
20. Ibid., 233.
21. Debra Whitefield, “Unruh Calls for Pension Funds to Flex Muscles,” Los Angeles Times, February 3, 1985.
22. Johnston, Takeover, 60.
23. Ibid., 70–71.
24. Stevens, King Icahn, 149.
25. Ibid., 14.
26. Ibid., 18.
27. Ibid., 28.
28. Ibid., 31.
29. John Brooks, The Takeover Game (New York: Dutton, 1987), 86.
30. Stevens, King Icahn, 43.
31. Ibid., 43.
32. Ibid., 111.
33. Ken Auletta, “The Raid: How Carl Icahn Came Up Short.” New Yorker, March 2006.
34. Bruck, The Predators’ Ball, 247.
35. James Stewart, Den of Thieves (New York: Touchstone, 1992), 136.
36. Bruck, The Predators’ Ball, 17.
37. Ibid., 163.
38. John Taylor, Storming the Magic Kingdom: Wall Street, the Raiders, and the Battle for Disney (New York: Ballantine, 1988), 108.
39. Bruck, The Predators’ Ball, 165.
40. Ibid., 166.
41. Pickens, The Luckiest Guy in the World, 234.
42. Front-loaded, “two-tier” tender offers divide the tender into two stages. The first tier usually targets 51% of the shares. The second tier, for the remaining 49%, generally offers less beneficial terms. For example, the first tier might be all-cash versus a second tier that offers debt securities. This pressures shareholders to participate in the first 51% for fear that they will be stuck accepting a lesser offer on the back end.
43. Stevens, King Icahn, 163.
44. Carl Icahn, letter to William C. Douce dated February 7, 1985, quoted in Phillips Petroleum Proxy Statement, February 8, 1985.
45. Intentionally triggering the poison pill seemed crazy, but not totally crazy. If Icahn bought 30%, the poison pill would essentially replace the other shareholders with debt, giving him full control for $2.5 billion. The total consideration for the deal would be about $59 per share, not that much higher than his proposed $55 per share.
46. William C. Douce, letter to Icahn dated February 4, 1985, quoted in Phillips Petroleum Proxy Statement, February 8, 1985.
47. Robert J. Cole, “Phillips, Icahn Argue on Note Plan,” New York Times, February 9, 1985.
48. Douce, February 4, 1985, letter to Icahn.
49. Bruck, The Predators’ Ball, 166.
50. Daniel Rosenheim, “Recess Called, Phillips Shakes Bushes for Votes,” Chicago Tribune, February 23, 1985.
51. Robert J. Cole, “Phillips Meeting Recessed for a Day,” New York Times, February 23, 1985.
52. Johnston, Takeover, 86.
53. Ibid., 86–87; also Cole, “Phillips Meeting Recessed for a Day.”
54. Cole, “Phillips Meeting Recessed for a Day.”
55. Johnston, Takeover, 87.
56. Pickens, The Luckiest Guy in the World, 235.
57. Steven Brill, “The Roaring Eighties,” American Lawyer, May 1985.
58. Robert Slater, The Titans of Takeover (Washington, D.C.: BeardBooks, 1999), 85.
59. Brill, “The Roaring Eighties.”
60. Stevens, King Icahn, 187.
61. Ibid., 304.
62. Brill, “The Roaring Eighties.”
63. Robert A. G. Monks and Nell Minow, Corporate Governance, 5th ed. (Hoboken, NJ: Wiley, 2011), 288.
64. T. Boone Pickens, Boone (Boston: Houghton Mifflin, 1987), xii–xiii.
65. The 1990–91 recession ran from July 1990 to March 1991. The S&L crisis went from 1986 to 1995.
66. “The Milken Sentence; Excerpts from Judge Wood’s Explanation of the Milken Sentencing,” New York Times, November 22, 1990.
67. Kurt Eichenwald, “Wages Even Wall Street Can’t Stomach” New York Times, April 3, 1989.
68. Robert Sobel, Dangerous Dreamers: The Financial Innovators from Charles Merrill to Michael Milken (New York: Wiley, 1993), 94.
69. Stewart, Den of Thieves, 259.
70. Harvey Silverglate, Three Felonies a Day: How the Feds Target the Innocent (New York: Encounter Books, 2011), 101.
71. Carol J. Loomis, “How Drexel Rigged a Stock,” Fortune, November 19, 1990.
72. Benjamin J. Stein, A License to Steal: The Untold Story of Michael Milken and the Conspiracy to Bilk the Nation (New York: Simon & Schuster, 1992), 113.
73. Sobel, Dangerous Dreamers, 207, and Stein, A License to Steal, 114.
74. Stein, A License to Steal, 105.
75. Sobel, Dangerous Dreamers, 88.
76. See William K. Black, The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry (Austin: University of Texas Press, 2006).
77. “Drexel Burnham Lambert’s Legacy: Stars of the Junkyard,” Economist, October 21, 2010.
78. Brill, “The Roaring Eighties.”
79. Ibid.
80. Ibid.
81. Ibid.
82. Bruck, The Predators’ Ball, 172.
83. Stevens, King Icahn, 170.
5: ROSS PEROT VERSUS GENERAL MOTORS: THE UNMAKING OF THE MODERN CORPORATION
1. The saga was described in Ken Follett’s book On Wings of Eagles (New York: Signet, 1984).
2. Doron Levin, Irreconcilable Differences: Ross Perot Versus General Motors (Boston: Little, Brown, 1989), 34–38. When the aircraft was turned away, he protested outside the North Vietnamese embassy in Laos with a bullhorn.
3. Ibid., 24.
4. Albert Lee, Call Me Roger (Chicago: Contemporary Books, 1988), 17.
5. Ibid., 175. In 1980 a GM car cost $300 less to build than a Ford and $320 less than a Chrysler. By 1986, GM’s cars were $300 more expensive to build than either Ford’s or Chrysler’s.
6. J. Patrick Wright, On a Clear Day You Can See General Motors: John Z. DeLorean’s Look Inside the Automotive Giant (Grosse Point, MI: Wright Enterprises, 1979), 191.
7. Lee, Call me Roger, 110.
8. Ibid., 144.
9. Thomas Moore, “The GM System Is like a Blanket of Fog,” Fortune, February 15, 1988.
10. Lee, Call Me Roger, 156.
11. Ibid., 253.
12. Most of the carriage manufacturers suffered the same fate as the buggy whip makers. Studebaker and Durant were notable exceptions.
13. Joshua Davidson, “Durant, William Crapo,” Generations of GM History, GM Heritage Center, December 15, 2007. Durant’s pension was $10,000 a year. According to the folks at dollartimes.com, that was equivalent to 108,000 in 2014 dollars in 1947, and 169,000 in 2014 dollars in 1936, when the pension started.
14. Alfred P. Sloan Jr., My Years with General Motors (New York: Currency/Doubleday, 1990), 30.
15. Ibid., 140.
16. Ibid., 53.
17. Ibid., 429.
18. Amazingly, two-thirds of the $12 billion of military equipment GM manufactured during the war had never been produced by the company before.
19. Though GM did not delegate any responsibility to its factory laborers, a fact that concerned Drucker deeply.
20. Peter F. Drucker, Concept of the Corporation (New Brunswick, NJ: Transaction, 2008), 63–64.
21. Ibid., 65. In Concept of the Corporation, Drucker concluded—optimistically and very incorrectly—that the objective policy required to preserve GM’s decentralization and open discourse was its accounting system and focus on divisional return on capital. His idea was that GM’s financial controls alone would allow rational decision making to prevail. GM’s younger generation of managers agreed with this point. After Sloan retired, GM began to view its policies and structure as a science with unbending rules, and installed accountants, rather than operators, to run the business.
22. Sloan’s book also had a ghostwriter—John McDonald from Fortune magazine.
23. Wright, On a Clear Day You Can See General Motors, 12.
24. Ibid., 7.
25. DeLorean later lamented that the episode probably did more to damage GM than help it, as the engineering committee significantly ramped up its oversight of the divisions in response to the subterfuge.
26. Wright, On a Clear Day You Can See General Motors, 27.
27. Amanda Bennett, “GM Picks Roger B. Smith to Guide Auto Firm Through Critical Decade,” Wall Street Journal, September 10, 1980.
28. Lee, Call Me Roger, 96, and Levin, Irreconcilable Differences, 126.
29. Mike Tharp, “US and Japan Agree on Ceilings for Car Shipments Through 1983,” New York Times, May 1, 1981.
30. GM had always been too insular, so Smith increasingly looked outside the company for new ideas. He based the organizational restructuring on input from McKinsey, and he entered into several joint ventures, including one with a Japanese robot maker.
31. Lee, Call Me Roger, 154.
32. Ibid., 144.
33. Levin, Irreconcilable Differences, 205–6.
34. Ross Perot, speech to the GM board, November 4, 1985.
35. Lee, Call Me Roger, 18.
36. In his 1985 speech to the GM board, Perot quoted a Honda executive reacting to one of GM’s newest plants, “GM Saturn—$5 billion investment; 400,000 to 500,000 cars a year; 6,000 Saturn employees. That’s what I read in the newspapers. At Honda, we have invested $600 million, will make 300,000 cars with only 3,000 workers. I must be missing something.” The other examples are from Perot’s speech to the GM board on November 4, 1985, quoting James Harbour.
37. Drucker, Concept of the Corporation, 298.
38. Lee, Call Me Roger, 26
39. “403: NUMMI,” This American Life radio program, aired March 26, 2010, Chicago Public Media.
40. Michael Moore, Roger and Me (Burbank, CA: Warner Home Video, 2003), DVD, minute 69.
41. Jeffrey Liker, an engineering professor at the University of Michigan at Ann Arbor: “This kind of very flexible, self-contained approach is exactly what Toyota did in the early days of the Toyota Production System.” Alan Ohnsman, “Tesla Motors Cuts Factory Cost to Try to Generate Profit,” Bloomberg Business, April 12, 2012.
42. “NUMMI,” This American Life.
43. Maryann Keller, Rude Awakening: The Rise, Fall, and Struggle for Recovery of General Motors (New York: Morrow, 1989), 131, and James Womack, Daniel T. Jones, and Daniel Roos, The Machine That Changed the World (New York: Free Press, 1990), 82–84.
44. Ross Perot, speech to the GM board, November 4, 1985.
45. Ibid.
46. Levin, Irreconcilable Differences, 251.
47. Lee, Call Me Roger, 27.
48. Levin, Irreconcilable Differences, 261.
49. Ibid., 28.
50. Ibid., 323.
51. Lee, Call Me Roger, 124.
52. Ibid., 207. Perot’s relationship with GM also took a turn for the worse when Perot would not let GM auditors into EDS. Perot’s deal with GM specifically entitled EDS to its own auditors, but GM wanted to double-check EDS’s cost-plus billings. Perot finally relented, but only under severe pressure.
53. Levin, Irreconcilable Differences, 311.
54. Lee, Call Me Roger, 198.
55. Joseph B. White, “Low Orbit,” Wall Street Journal, May 24, 1991.
56. This is actually an interesting question to ponder. If his intention had been to embarrass GM all along, why actually sign the deal? It seems like the move was either a calculated attempt by Perot to spin the buyout in his favor, or he genuinely had misgivings. I tend to believe that (1) Perot genuinely didn’t think GM would go through with the deal, and that (2) once it all happened, he really was hoping that GM’s board or the shareholders would scuttle it. It’s also worth pointing out that GM refused to let Perot publicize the deal before they executed it.
57. Keller, Rude Awakening, 189–90.
58. Lee, Call Me Roger, 253.
59. Ibid., 258.
60. Robert A. G. Monks and Nell Minow, Case Studies: Corporations in Crisis, dated June 30, 2011, http://higheredbcs.wiley.com/legacy/college/monks/0470972599 /supp/casestudies.pdf, 29; Robert A. G. Monks and Nell Minow, Power and Accountability: Restoring the Balance of Power Between Corporation, Owners and Society (New York: HarperCollins, 1992), 186.
61. Jacob M. Schlesinger and Paul Ingrassia, “GM’s Outside Directors Are Ending Their Passive Role,” Wall Street Journal, August 17, 1988.
62. Ibid.
63. Monks and Minow, Power and Accountability, 183.
64. Luis A. Aguilar, “Institutional Investors: Power and Responsibility,” speech, Georgia State University, Atlanta, April 19, 2013.
65. Sloan lived until he was ninety; most of the other GM owner-capitalists were much older than him.
66. The government argued that DuPont’s minority ownership violated antitrust laws by restricting trade in automotive fabrics and finishes, which the company supplied to GM. DuPont’s representatives resigned from the GM board, and the company distributed its GM shares to DuPont shareholders.
67. Peter Drucker, The Unseen Revolution: How Pension Fund Socialism Came to America (Oxford: Butterworth-Heinemann, 1976), 7–10.
68. Ibid.
69. The high-performance rear engine coupled with its swing-axle suspension made the rear spin out during high speed turns.
70. This was Bucky Knudsen, who ran Pontiac and then Chevrolet for GM. He was also the son of William Knudsen, a former GM president who was tabbed by Roosevelt to lead the production of war materials.
71. Rather than mind its own troubled affairs, the company exacerbated its problems by hiring detectives who spied on Nader and spread rumors that he was homosexual.
72. Alex Taylor III, Andrew Erdman, Justin Martin, and Tricia Welsh, “U.S. Cars Come Back,” Fortune, November 16, 1992. GM’s product failures also had large repercussions because of the company’s use of “badge engineering” to get maximum use out of new designs. GM began rebadging its cars in the early 1970s by making Pontiac, Oldsmobile, and Buick models out of the Chevrolet Nova. While this reduced GM’s production, development, and engineering costs, it gutted the creativity of the automotive divisions. None of the standardization resulted in meaningful improvements in quality. GM cars were as crappy as ever, and now they all looked the same.
73. Ricki Fulman, “Shareholder Activism: Pension Funds Led Corporate Governance Revolution: Not Just for Gadflys Anymore, Investor Activism Gets Results,” Pensions and Investments, February 9, 1998.
74. Robert A. G. Monks and Nell Minow, Corporate Goverance, 5th ed. (Hoboken, NJ: Wiley, 2011), 208.
75. HBS California PERS (A), Case 9-291-045, August 17, 2000. Permission to use quotation granted by Harvard Business Publishing.
76. Doron P. Levin, “GM Executives to Explain Perot Buyout to Institutional Investors and Analysts,” Wall Street Journal, December 15, 1986.
6: KARLA SCHERER VERSUS R. P. SCHERER: A KINGDOM IN A CAPSULE
1. Karla Scherer, “Corporate Power, the Old Boys’ Network, and Women in the Boardroom,” speech, University of Windsor, Windsor, Ontario, September 12, 1997.
2. Ibid.
3. Greer Williams, “He Did It with Capsules,” Saturday Evening Post, April 9, 1949, 29.
4. See Icahn’s Theory of Reverse Darwinism.
5. Ibid.
6. Remington: The Science and Practice of Pharmacy, edited by University of the Sciences in Philadelphia, 21st ed. (Philadelphia: LWW, 2005), 923.
7. Williams, “He Did It with Capsules.”
8. Ibid.
9. Ibid.
10. “R. P. Scherer Historical Outline,” R. P. Scherer press release, 1983.
11. Ibid.
12. Philip R. Pankiewicz, American Scissors and Shears: An Antique and Vintage Collectors’ Guide (Boca Raton, FL: Universal-Publishers, 2013), 150.
13. “Historical Outline” press release.
14. John Goff, “A Woman Scorns,” Corporate Finance, November 1989. “But there was a lack of direction coming from the corporate headquarters.”
15. “Historical Outline” press release.
16. Robert Jr. had one success, Storz Instruments, which he sold to American Cyanamid for over $100 million. He continued wheeling and dealing through a public company called Scherer Healthcare, which generated mediocre returns over its lifetime.
17. “Historical Outline” press release.
18. R. P. Scherer dealbook, prepared by Goldman Sachs, circa 1988, 81–82.
19. Ibid., 48–50.
20. R. P. Scherer 1985 Annual Report discloses that the company bought Lorvic/Scientific Associates in 1985 for $5,075,000 (661,578 shares plus cash). The 1988 Annual Report discloses that the company bought Southern Optical in 1987 for $9,627,000 (660,059 shares at $13 plus cash). R. P. Scherer stock was ultimately bought by Shearson Lehman Hutton for $31.75.
21. R. P. Scherer 1992 Annual Report.
22. R. P. Scherer 1986 Annual Report.
23. “Paco Status Report,” R. P. Scherer company memo, February 2, 1989.
24. Karla Scherer, interview with the author, August 26, 2013.
25. Michigan let Karla take classes year-round to accelerate her degree.
26. Karla notes that after her mother died in 1980, she and her sister got divorced, her younger brother got married, and she never saw her older brother, Robert Jr., again.
27. Scherer interview.
28. Ibid.
29. “R. P. Scherer Corp. Stock Prices,” January 1979 through May 1988.
30. Scherer interview.
31. R. P. Scherer Proxy Statement, July 15, 1988.
32. Scherer, “Corporate Power” speech.
33. Scherer interview.
34. Scherer, “Corporate Power” speech.
35. R. P. Scherer 1988 Proxy Statement.
36. Scherer, “Corporate Power” speech.
37. R. P. Scherer 1988 Proxy Statement; Scherer interview.
38. R. P. Scherer 1988 Proxy Statement.
39. Ibid.
40. Scherer interview.
41. R. P. Scherer Board Minutes, June 8, 1988.
42. R. P. Scherer Proxy Letter, August 4, 1988.
43. Morrow and Company, “R. P. Scherer Corporation—Combined Classes,” shareholder analysis, 1988.
44. “Scherer Management Yields Shareholder Names on Eve of Trial; Brother of Major Owner Claims of Major Harassment of Sister,” Casey Communications Management press release, July 7, 1988.
45. James Janega, “Theodore Souris, 76: Michigan Court Justice and ‘Exemplary’ Lawyer,” obituary, Chicago Tribune, June 22, 2002.
46. In a later letter, Fink and Mack refer to Karla’s plan to sell the company as a “scheme.”
47. Morrow, “Combined Classes” shareholder analysis.
48. Technically, Richardson was chairman and CEO of Manufacturers National Corporation, the parent company of the bank. His official title of the Manufacturers National Bank subsidiary was chairman.
49. William M. Saxton and Philip J. Kessler from Butzel, Long, Gust, Klein & Van Zile, brief in support of motion to remove Manufacturers National Bank as trustee, August 10, 1988.
50. Ibid.
51. “Schedule 14D9,” R. P. Scherer, May 5, 1989.
52. See Robert A. G. Monks and Nell Minow, Corporate Governance, 5th ed. (Hoboken, NJ: Wiley, 2011), 252: “They are the middlemen (and a few middlewomen) who provide balance and mediate the conflicts of interest between a small group of key managers based in corporate headquarters and a vast group of shareholders spread all over the world.”
53. See Jonathan Macy, Corporate Governance: Promises Kept, Promises Broken (Princeton, NJ: Princeton University Press, 2011), 51: “Perhaps the most basic principle of corporate law in the United States is that corporations are controlled by boards of directors, rather than shareholders. . . . Specifically, under U.S. law, corporations are managed by or under the direction of boards of directors, making the directors literally the governors of the corporation.”
54. This is Karla’s memory of what Peter said about a friend who was ultimately appointed to the R. P. Scherer board.
55. Arthur Levitt, Take on the Street (New York: Pantheon Books, 2002), 201.
56. Monks and Minow, Corporate Governance, 257.
57. Macey, Corporate Governance, 64.
58. James Madison, Federalist 10, again per Macey, Corporate Governance.
59. Warren E. Buffett, “2002 Chairman’s Letter,” Berkshire Hathaway, February 21, 2003.
60. Jim Jelter, “Coca Cola Executive Pay Plan Stirs David Winters’ Wrath,” WSJ Marketwatch, March 24, 2014.
61. Form 8-K, Securities & Exchange Commission, April 23, 2014.
62. Carl C. Icahn, “Why Buffett Is Wrong on Coke,” Barron’s, May 3, 2014.
63. Warren E. Buffett, 2014 Berkshire Hathaway shareholders meeting, May 3, 2014.
64. George W. Bush, “Remarks on Signing the Sarbanes-Oxley Act of 2002,” July 30, 2002, Public Papers of the Presidents of the United States: George W. Bush, Book II: Presidential Documents—July 1 to December 31, 2002 (Washington, D.C.: U.S. Government Printing Office, 2002), 1319–21.
65. Macey, Corporate Governance, 81.
66. Alex Erdeljan, interview with the author, July 21, 2014.
67. All of these figures come from R. P. Scherer annual reports between 1984 and 1999.
68. Erdeljan interview.
7: DANIEL LOEB AND HEDGE FUND ACTIVISM: THE SHAME GAME
1. Or, as his lawyers succinctly put it, the filing “shall not be construed to be an admission by the Reporting Persons that a material change has occurred in the facts set forth in this Schedule 13D or that such amendment is required under Rule 13d-2 of the Securities Exchange Act of 1934, as amended.” Ron Burkle, “The Yucaipa Companies,” 13d Morgans Hotels, amendment 10, September 3, 2013.
2. Ibid.
3. Robert A. G. Monks and Nell Minow, Corporate Governance, 5th ed. (Hoboken, NJ: Wiley, 2011), 220.
4. Jack D. Schwager, Market Wizards: Interviews with Top Traders (New York: Harper-Business, 1989), 117.
5. Warren Buffett, “Our Performance in 1963,” letter to partners, January 18, 1964: “Our willingness and financial ability to assume a controlling position gives us two-way stretch on many purchases in our group of generals.” Warren Buffett, “Our Performance in 1964,” letter to partners, January 18, 1965: “Many times in this category we have the desirable ‘two strings to our bow’ situation where we should either achieve appreciation of market prices from external factors or from the acquisition of a controlling position in a business at a bargain price. While the former happens in the overwhelming majority of cases, the latter represents an insurance policy most investment operations don’t have.”
6. Letter from Robert L. Chapman to Mr. Lawrence W. Leighton, Securities and Exchange Commission Schedule 13D, May 18, 1999.
7. Letter from Robert L. Chapman to Riscorp/Mr. Walter L. Revell, Securities and Exchange Commission Schedule 13D, October 28, 1999.
8. Letter from Robert L. Chapman to ACPT/J. Michael Wilson, Securities and Exchange Commission Schedule 13D, March 30, 2000. Chapman uses such crazy words, I don’t know if “underserved” is a typo or not.
9. Deepak Gopinath, “Hedge Fund Rabble-Rouser,” Bloomberg Markets, October 2005.
10. “Around the World with Robert Chapman,” interview by Emma Trincal, January 5, 2006, http://www.thestreet.com/print/story/10260146.html.
11. Gopinath, “Rabble-Rouser.”
12. The “buyside” refers to the investment management business while the “sellside” refers to the broker-dealer business.
13. Gopinath, “Rabble-Rouser.”
14. Jefferies pleaded guilty to two felony charges in 1987 and resigned from his company.
15. “DBL Liquidating Trust Payouts to Creditors Exceed Expectations . . . Trust Aims to Complete Activities in One Year,” Business Wire, April 26, 1995, http://www.thefreelibrary.com/DBL+LIQUIDATING+TRUST+PAYOUTS+TO+CREDITORS+EXCEED+EXPECTATIONS+. . . . . .-a016863686.
16. “Liquidation of Drexel Is Ending on a High Note,” Los Angeles Times, March 28, 1996.
17. Katherine Burton, Hedge Hunters: After the Credit Crisis, How Hedge Fund Masters Survived (New York: Bloomberg Press, 2010), 195.
18. Robert E. Wright and Richard Scylla, “Corporate Governance and Stockholder/Stakeholder Activism in the United States, 1790–1860: New Data and Perspectives,” in Origins of Shareholder Advocacy, edited by Jonathan G. S. Koppell (New York: Palgrave Macmillan, 2010), 244.
19. Connie Bruck, The Predators’ Ball: The Inside Story of Drexel Burnham and the Rise of the Junk Bond Raiders (New York: Penguin, 1989), 315.
20. Gopinath, “Rabble-Rouser.”
21. William Thorndike, The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success (Boston: Harvard Business Review Press, 2012), has an entire chapter on Stiritz.
22. Dan Loeb letter to William Stiritz, Agribrands, September 8, 2000.
23. Agribrands definitive proxy statement March 19, 2001.
24. Daniel Loeb letter to James Dearlove chairman and CEO of Penn Virginia, December 11, 2002.
25. Letter from Daniel Loeb to John W. Collins, chairman and CEO of InterCept, Securities and Exchange Commission Schedule 13D, May 27, 2004.
26. Letter from Daniel Loeb to John W. Collins, chairman and CEO of InterCept, Securities and Exchange Commission Schedule 13D, June 24, 2004.
27. Gopinath, “Rabble-Rouser.”
28. Star Gas is a publicly traded master limited partnership, so “shares” are really “units,” but I’m going to stick to “shares” and “stock” for simplicity’s sake.
29. Star Gas Partners, third-quarter 2004 earnings conference call, July 29, 2004.
30. Star Gas Partners third-quarter 2003 earnings conference call, August 6, 2003.
31. All these figures are from Star Gas Partners SEC filings.
32. I’m using EBITDA minus capital expenditures, as Star Gas amortizes its acquired customer lists. Sevin’s best year was $93 million of EBITDA minus capex. In 2014, SGU did $99 million of EBITDA minus capex.
33. Full disclosure, I own SGU shares, as does the fund I manage.
34. R. Kelly, “Ignition (Remix).”
35. Randall Smith, “Some Big Public Pension Funds Are Behaving Like Activist Investors,” New York Times, DealBook, November 28, 2013.
36. Steve Fishman, “Get Richest Quickest,” New York, November 22, 2004.
37. Max Olson, “The Restaurant Investor,” Max Capital Corporation/Futureblind.com, November 25, 2009.
38. Greg Wright, “Friendly Ice Cream Cool to Overtures from Dissident Biglari,” Dow Jones Newswires, March 8, 2007.
39. Olson, “The Restaurant Investor.”
40. Biglari Holdings Form 4 filing, January 15, 2015.
41. The rights price was $250 per share and the closing price on the day of the announcement was $432.
42. Jeff Swiatek, “Steak ’n Shake-up Looming? Investor Launches Effort to Oust Parent Firm’s CEO Biglari,” Indianapolis Star, January 18, 2015.
43. Letter from Sardar Biglari to Friendly’s Shareholders, Securities and Exchange Commission Schedule 13D, March 6, 2007.
44. Jonathan Maze, “Biglari Holdings Co-Owns a Few Jets,” Restaurant Finance Monitor, September 17, 2014. http://registry.faa.gov/aircraftinquiry/Name_Results.aspx?Nametxt=BIGLARI&sort_option=1&PageNo=1.
8: BKF CAPITAL: THE CORROSION OF CONFORMITY
1. Katrina Brooker, “How Do You Like Bill Ackman Now?” Bloomberg Markets, February 2015.
2. Pershing Square Capital Management LP, Securities and Exchange Commission Schedule 13F, November 14, 2014. The 13F excludes foreign positions, unlisted companies, debt securities, and short positions.
3. These figures are from the presentation “Think Big,” Pershing Square Capital Management LP, May 16, 2012.
4. I could swear I heard Ackman make this analogy himself, but I can’t remember when or where.
5. Svea Herbst-Bayliss and Katya Wachtel, “Hedge Fund Manager Ackman Says Mistakes Made in JC Penney Turnaround,” Reuters, April 5, 2013.
6. Brooker, “Bill Ackman.”
7. For an example see Lucian A. Bebchuk, Alon Brav, and Wei Jiang, “The Long-Term Effects of Hedge Fund Activism,” which tackles both operating performance and stock performance in the five years following an activist 13D filing. http://www.columbia.edu/~wj2006/HF_LTEffects.pdf.
8. Jonathan R. Laing, “Hold ’Em Forever: How Baker Fentress Invented Long-Term Investing,” Barron’s, December 31, 1990.
9. Baker, Fentress & Company, 1995 Annual Report, February 27, 1996.
10. “[O]ne of the reasons that Baker Fentress is going to be very helpful to us is that through their public portfolio, the portfolio that we manage, we can help us attract other investment managers to our firm. We can give them funds to run for Baker Fentress immediately, so it really helps us feed managers in the business, so it’s a pretty big plus.” Jessica Bibliowicz, “CEO Interview,” Wall Street Transcript, March 1, 1998.
11. John Levin’s long-only accounts only generated about 0.5% of assets in net fees. His son’s hedge fund charged double that plus a 20% cut of investment profits.
12. BKF Capital Group Inc. SEC filings show 80% growth from year-end 1998 to year-end 1999.
13. John A. Levin, phone interview by the author, January 28, 2015.
14. Ibid.
15. From the company’s proxy statement, and Warren Buffett’s Securities and Exchange Commission Schedule 13G, August 3, 1999.
16. The stock was written up three years in a row on ValueInvestorsClub, and of course Buffett’s ownership had attracted attention.
17. Levin, author interview.
18. Gabelli Asset Management Inc., Securities and Exchange Commission Schedule 13D, July 3, 2001.
19. James McKee, General Counsel of GAMCO, letter to Norris Nissim, General Counsel of BKF Capital Group Inc., filed as exhibit to Securities and Exchange Commission Schedule 13D, September 19, 2003.
20. Phillip Goldstein, Opportunity Partners LP, letter to Norris Nissim, General Counsel of BKF Capital Group Inc., filed as exhibit to Securities and Exchange Commission Schedule 13D, November 17, 2003.
21. Warren Lichtenstein, SL Full Value Committee, letter to Owen Farren, President and CEO, SL Industries Inc., filed as exhibit to Securities and Exchange Commission Schedule 14A, February 16, 2001.
22. Yahoo! Finance, includes dividends.
23. BKF Capital Group Inc. Proxy Statement, and Walter Lichtenstein letter to Board of Directors, BKF Capital Group Inc., filed as exhibit to Securities and Exchange Commission Schedule 14A, December 16, 2004.
24. Ibid.
25. BKF Capital Group Inc. Proxy Statement, filed as exhibit to Securities and Exchange Commission Schedule 14A, May 18, 2005.
26. BKF Capital Group Inc. Proxy Filing, filed as exhibit to Securities and Exchange Commission Schedule 14A, May 26, 2005.
27. Ibid.
28. Ibid.
29. BKF Capital Group Inc. Proxy Filing, and Warren Lichtenstein open letter to shareholders, filed as exhibit to Securities and Exchange Commission Schedule 14A, May 24, 2005.
30. Joe Nocera, “No Victors, Few Spoils in This Proxy Fight,” New York Times, July 22, 2006: “Mr. Cannell, the hedge fund manager in San Francisco, wrote a series of flamboyant, incendiary letters that deeply offended the BKF board and Mr. Levin, accusing the company in one letter of having ‘a culture of greed and self-dealing.’”
31. “Manna from Hedging,” Institutional Investor, June 1, 2003.
32. J. Carlo Cannell, “Investor Insight: Carlo Cannell,” interview, Value Investor Insight, March 31, 2006.
33. Ibid.
34. Value Investing Congress, 2009, in Pasadena, California.
35. “Carlo Cannell Announces He Is Stepping Down as Manager of Cannell Family of Hedge Funds,” Business Wire, February 27, 2004.
36. Cannell Capital LLC, Securities and Exchange Commission Schedule 13G, February 14, 2005, and Securities and Exchange Commission Schedule 13D, June 1, 2005.
37. Carlo Cannell, interview by the author, January 27, 2015.
38. Ibid.
39. William H. Janeway, Doing Capitalism in the Innovation Economy: Markets, Speculation and the State (Cambridge: Cambridge University Press), 26.
40. Elizabeth Peek, “Farewell, Peter Cannell,” New York Sun, May 3, 2005.
41. Ibid.
42. Joseph B. Werner, “Money Manager Interview,” Wall Street Transcript, October 6, 1997.
43. Townsend Hoopes and Douglas Brinkley, Driven Patriot: The Life and Times of James Forrestal (Annapolis, MD: Naval Institute Press), 62.
44. Dividend announcement was April 6, 2005, according to BKF Capital Group Inc. Securities and Exchange Commission Exhibit 99.1, April 6, 2005.
45. Steel Partners, Proxy and Letter to Shareholders, filed as exhibit to Securities and Exchange Commission Schedule 14A, June 9, 2005.
46. Dated May 26, May 18, and June 8, 2005.
47. John Levin, letter to Institutional Shareholder Services, BKF Capital Group Inc. Proxy Filing, Securities and Exchange Commission Schedule 14A, June 17, 2005.
48. BKF Capital Group Inc., Proxy Filing, filed as exhibit to Securities and Exchange Commission Schedule 14A, June 23, 2005, and Steel Partners, Press Release, filed as exhibit to Securities and Exchange Commission Schedule 14A, June 23, 2005.
49. All this information comes from BKF Capital Group Inc. SEC filings.
50. Yahoo! Finance.
51. BKF Capital Group Inc. annual proxy statements.
52. “Lack of Accountability” was the section heading in the May 16 letter to shareholders from Warren Lichtenstein, in BKF proxy filing May 16.
53. BKF Capital Group Inc. Securities and Exchange Commission Schedule 8K, April 22, 2005, and SEC Exhibit 10.1, April 19, 2005.
54. The first hedge fund I worked for sold itself to a large bank in 2002, and the subsequent 50/50 fee split was an utter failure that resulted in a massive exodus of talent.
55. Steel Partners, BKF Proxy Filing, Securities and Exchange Commission Schedule 14A, December 16, 2004.
56. Levin, author interview.
57. Cannell, author interview.
58. Nocera, “No Victors.”
59. Levin, author interview.
60. Ibid.
61. Cannell, author interview.
62. Levin, author interview.
CONCLUSION
1. Ben McGrath, “13D, “New Yorker, August 7, 2006.
2. Michael Lewis, “The Man Who Crashed the World: Joe Cassano and AIG,” Vanity Fair, August 2009.
3. Lynn Stout, The Shareholder Value Myth (San Francisco: Berrett-Koehler, 2012), 23.
4. Public company shares bestow certain contractual rights to holders, including the right to vote for directors and the right to a fractional interest in the proceeds from a liquidation of the assets. Shareholders can also propose nonbinding resolutions and sue the directors and management for failure to perform their duties. Other than the shareholders’ right to sell their shares, that’s really about it.
5. Many legal scholars cite Dodge v. Ford Motor in arguing that the law does require directors to maximize profits for shareholders. Also, see Leo E. Strine Jr., “Our Continuing Struggle with the Idea That For-Profit Corporations Seek Profit,” Wake Forest Law Review 47 (2012): 135–72.
6. Shareholder Rights Project at Harvard Law School, http://srp.law.harvard.edu/companies-entering-into-agreements.shtml.
7. Herbert Allen, “Conflict Cola,” Wall Street Journal, April 15, 2004.
8. Warren Buffett, letter to Bill and Melinda Gates, June 26, 2006.