Monday, February 16, 2015

Shareholder Activism and Political Correctness

Dealbook issued a novel politically correct gender bias attack on shareholder activists. It noted that six of the 23 S&P 500 firms headed by women have been targeted by activists. This limited sample over a short time period is alleged to constitute circumstantial evidence of gender bias. Putting aside the statistical issues consider the following:

1)     Activists are probably the most equal opportunity group of investors in existence. All they care about is perceived value gaps which they can exploit. This is usually represented by ROE< cost of equity or market values<breakup value. Race, color, creed, nationality, or gender are not screens they use to identify targets. This is not because they are nice guys. Rather it is because they must make profit to attract investor funds. If you underperform you pop up on their list and they will be calling you regardless of whether you are male, female, transgender, or a eunuch.

2)     The specific  harassed female lead firms identified in Dealbook  all have stories and performance issues which would justify inclusion on any activists list:

a) Pepsi: suffering from a profit decline related to sagging soda revenues-the same problem impacting Coca Cola. Activists raised concerns regarding the continued operation of the drinks and snacks businesses at Pepsi. This represents a legitimate view that shareholder value can be increased by spinning off the snack division.

b) Yahoo: Starboard raised issues concerning the tax efficient disposal of the Alibaba shares and the continued operation of Yahoo as an independent entity. Given Yahoo’s past performance problems these seem like appropriate questions to ask.

c) DuPont: Peltz wants to spinoff DuPont’s business units to improve efficiency. The CEO’s vigorous defense has been questioned by her recent surprise disposal of a large block of stock.

d) Mondelez: also suffered profit declines. The CEO’s judgment when CEO of Kraft (Mondelez was spun-off from Kraft) was questioned by Warren Buffett regarding the use of undervalued stock to fund an acquisition. Does Dealbook think Buffett is gender biased as well?

e)Hewlett-Packard: Meg Whitman has a difficult job turning around accident prone HP.  Any wonder why investors are concerned?

Thus, more than one conclusion, gender bias, can be drawn from the companies cited. Dealbook seems to be suggesting that female CEOs are immune to scrutiny and should be granted extra leeway. Is this political correctness or a disguised attack on shareholder activists?

My money is on the activists. Their self interested focus on profit ensures their gender blindness.

Before thinking I am a male chauvinist pig-keep in mind I have two daughters and especially frown upon anyone using gender to discriminate against them or anyone else.


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