Taxin Shares His Activist Playbook
Interview With Activist Investor Greg Taxin
Greg, do you think we are seeing a sort of “New Activism” these days, or are we simply seeing more of the same things we’ve been seeing all along?
“There are more activist funds, and more dollars being invested in them than ever before, as we know…But the biggest change is that we are seeing a ‘new breed’ of activists, who are much more professional. They do a lot more work than activists used to do. They do a lot more research, dig much deeper – and do a much better job of it.”
In your previous campaigns you seem to have targeted mostly small and mid-cap companies. Is there a reason for that?
“Most large and mega-cap companies are very well run these days. Even the worst of them are ‘pretty well-run.’ They almost always have good investment bankers and other advisors, and lots of eyes are looking at them. Even if they run off course, they usually don’t do so for long, or go very far astray. Small and mid- cap companies usually represent the best opportunities for investors who are looking to benefit in a significant way by instigating or supporting change.”
You mentioned research as a key part of the ‘new breed’ approach. Tell us a little more about the kinds of research you do…And are there any particular segments you focus on?
“We cast our nets very broadly. We are not looking for companies that may be a few hundred basis points off their peers. We look for companies where there is a big difference between intrinsic value and current market valuation. There will always be someone who is at the bottom of the list in every industry.
“We talk with customers and suppliers, competitors, former officers and directors and employees. We also do a lot of research on the current management and on the incumbent board members. In June of 2014, for example, we won a majority of the board seats at Value Vision Media, where the senior management team was clearly not devoting its full-time efforts to running and building the company. Its headquarters were in Eden Prairie, MN, and 11 of the 12 most senior people lived 1,000 miles or more away – in Philadelphia, Florida and Texas. They would fly in on Tuesday and fly out on Thursday afternoon. A related part of our research, and our strategy for change, is to find and elect director candidates with specific expertise, stature and domain expertise – not folks from ‘Philly’s best families’….or ‘best minds’…or ‘friends of the CEO.’”
What are your thoughts about paying director candidates to run – and promising bonuses tied to improved results?
“We haven’t ever done it…And we have never needed to do it. We have never, ever had anyone say ‘I would like to do it…but it doesn’t pay enough.’ We have had no problems at all in attracting outstanding director candidates to run for office. Over the past five years we have filled board seats with former CEOs and other very senior managers from companies like Appleby’s, Goldman Sachs, Aeropostale, HSN, Sachs Fifth Avenue, Tommy Hilfiger and a former governor of Montana.”
Recently, you made a remark about the ‘rules of proxy’ – and how they can sometimes give activists an advantage. Can you elaborate a bit?
“Proxy rules, proxy mechanics and ‘proxy plumbing issues’ are often quite complicated – and sometimes they can have unanticipated or unintended impacts. Activist investors, and their advisors, are pretty good at understanding and using ‘the system.’ And you can’t blame people for maximizing their leverage.”
What advice would you give to readers – most of whom are with publicly-traded companies –and trying very hard to “Cope with the New Activism”?
“Company officers and their boards need always to remember that companies must be run for their owners. As fiduciaries, directors are obliged to think long and hard on every decision they take - or that owners ask them to consider: Be open minded. Never be afraid to talk to owners and to carefully review and seriously consider implementing their suggestions.”
One last question…about advisors. It seems to me that at least a half-dozen companies this year have acted to their ultimate disadvantage on incredibly bad advice: Any thoughts?
“Having good outside advisors is important – and, for the most part, they are helpful. But yes, there have been instances where companies followed shockingly bad advice.
Here’s my advice: Don’t allow advisors to run their standard playbooks. Where activist efforts are concerned, officers and directors need to steel themselves against what is basically a mercenary army of people, who like war. Make sure that you do not get yourselves inextricably on this path because the people driving the train are ‘built for war.’”