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RICK NEWMAN: Activist investors seem
to be everywhere these days.
They've pressured the CEOs of Apple, General Motors, DuPont,
our own parent firm, Yahoo, and many other companies
to change the way they do business
and give more back to shareholders.
Why now?
Are they good for business or bad, and how far can they go?
Here with me to discuss is Jeff Gramm,
who runs a New York City hedge fund
and is author of the new book "Dear Chairman-- Boardroom
Battles and the Rise of Shareholder Activism."
Thanks for being here, Jeff.
JEFF GRAMM: Thanks for having me.
RICK NEWMAN: Why are we seeing shareholder activists playing
such a prominent role in corporate America these days?
JEFF GRAMM: Well, I think-- and activists
have been here a long time.
RICK NEWMAN: Right.
JEFF GRAMM: Like I talk about in the book, 100 years of history
of activists.
RICK NEWMAN: Right.
JEFF GRAMM: But the dynamic that is happening now
is the tacit support of the big institutions behind the scenes,
like the history in my book is really
the history of the passive investors behind the scenes.
And today, the passive investors are supporting a lot
of these [INAUDIBLE] activists.
RICK NEWMAN: So these passive investors
are big institutions like--
JEFF GRAMM: Yeah, the big pension funds.
RICK NEWMAN: --Vanguard, BlackRock, CalPERS, CalSTRS
pension funds, all of those?
JEFF GRAMM: Yeah.
And they're supporting a lot of these activist interventions.
You know, they don't support them all,
but they're supporting enough to feed the movement.
RICK NEWMAN: So is this tacit support?
Or do they sort of work together,
where an institution might actually
recruit an activist or vice versa, and they will tar--
JEFF GRAMM: That definitely happens.
RICK NEWMAN: OK.
JEFF GRAMM: Yeah.
Right.
It can be tacit, like in terms of the public perception
of the intervention.
But there definitely is some cooperation behind the scenes.
RICK NEWMAN: OK.
You've taught-- you talk about corporate governance
as generally being terrible.
JEFF GRAMM: Yeah.
RICK NEWMAN: So that suggests that activists
are playing a meaningful role.
JEFF GRAMM: Yeah.
RICK NEWMAN: Holding boards accountable.
JEFF GRAMM: Yeah.
And I think that's an important thing.
I think there are good activists and bad activists.
There are good interventions and--
RICK NEWMAN: Well, why don't you tell
us what-- define a good activist and give us an example,
and a bad activist with an example.
JEFF GRAMM: OK.
I mean-- I mean, I think the most basic thing
is a good activist, you know, like improves
the governance of a company and drives
it to do the best things for the shareholders,
and the employees, and the business, and the community.
And a bad activist forces a company
into bad short-term decisions or improper allocation
of its capital.
And, you know, both of these things can happen.
RICK NEWMAN: Yeah.
JEFF GRAMM: But, I mean, I think the big picture,
you know, positive impact of activism
is it does hold boards accountable.
RICK NEWMAN: Can you give examples
of companies that have been subject to both types
of activism recently?
JEFF GRAMM: I mean, not really.
I would rather not, you know, call out the bad activists.
But--
RICK NEWMAN: Short posi-- short-term view,
long-term view.
Does that make a difference?
I mean, you would think that an activist who
has a long position and interest in the long-term benefits
of a company would be better for the company.
JEFF GRAMM: Yeah.
I mean, look.
I mean, I think a problem in our financial markets
is the pervasive of short-term thinking.
And I think that's a problem that managers have,
that boards have, and that shareholders have.
And I'm not convinced that activists
are any more short term, you know, than anyone else.
But obviously, like, you want the best long-term decisions
for big corporations.
RICK NEWMAN: So having looked at this over time, do
you feel activists have improved corporate governance,
improved the performance of companies,
and made them better at what they do?
JEFF GRAMM: Yeah.
I mean, I think so.
I think that the pervasive threat of activism
holds boards accountable.
I think that's a good thing for everybody, that we want,
you know, to have a system where if you're
a director of a public company, then
you know there's a shareholder that
is looking over your shoulder that
will act if they're unhappy.
RICK NEWMAN: Yeah.
OK.
JEFF GRAMM: I think that's a good thing.
RICK NEWMAN: And last thing.
Anything activists could be doing better?
JEFF GRAMM: I mean, I do think it
does have to do with communicating
their ideas properly and long-term thinking.
And so, you know, to the extent that, like, we're
all out to improve the long-term performance
of public companies, I think that's the goal.
RICK NEWMAN: Right.
Folks, let us know what you think.
Shareholder activists-- good or bad for financial markets?
Tell us in the comments below, or look us up
on Facebook and Twitter at Yahoo Finance.