A critical part of an activist investor’s strategy is to be heard loud and clear in the corporate boardroom – preferably by instilling a degree of fear in the management and corporate directors so they pay attention. Diminishing the influence of an activist investor’s voice could dampen the effectiveness of their strategy.
Carl Icahn’s angry phone call to Larry Fink
It is for this reason that an “angry” phone call between activist investor Carl Icahn and BlackRock, Inc. (NYSE:BLK)’s Larry Fink is so interesting.
In March Fink wrote a letter to CEOs of publicly traded companies and essentially told them to stand firm, warning against short-term planning, specifically noting that buybacks and dividends could erode long-term returns. In the letter Fink said he wanted to “challenge the trend,” a direct inference to activist investors who appear to have taken control of the argument and now, studies have shown, tend to run roughshod over intimidated corporate boards.
“Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks,” Fink wrote, hitting at the heart of the activist hedge fund strategy while not addressing it by name. “When (returning cash to shareholders) is done for the wrong reasons and at the expense of capital investment, it can jeopardize a company’s ability to generate sustainable long-term returns.”
Apparently Carl Icahn didn’t like this long term thinking.
Icahn and another express their displeasure with Blackrock’s letter
A new article in Fortune Magazine reveals that Icahn and one other activist investor had called Fink in “anger” to express their displeasure with the letter. Icahn was quoted in the article saying that many CEOs didn’t have the ability to determine how their company money should be sent. “What’s even more dangerous and concerning is that so many of the companies do not have CEOs that have the ability to make investments …” Icahn was quoted as saying.
Icahn’s critique of Fink comes as he had applauded previously passive investors for speaking up. In a now deleted post on Icahn’s website he wrote: “My fellow investors, there are moments in history when otherwise small, discrete acts greatly influence the larger destiny of secular changes, and I believe we are at one of those moments now.” Icahn was quoted by the Wall Street Journal, which linked to the now deleted post. “I call on all institutional investors to step up and face the challenges before us.”
Speaking up is fine, evidently, so long as one agrees with Mr. Icahn.