'Carl Icahn Deserves The Nobel Prize'

According to my old friend Robert A.G. Monks — at 80 years of age still the sharpest thinking corporate governance guru in the world– Carl Icahn, the 77 year old summa cum laude graduate of Princeton University (the wealthiest man on Wall Street), should get the Nobel for leading America’s hedge fund community to the dynamic legitimization of the corporate governance movement in America. By Monks’ reckoning– and he’s been waging war on inept managements as well as passive institutional investors for some time now– the take-no-prisoners hedge fund operators are taking the corporate governance movement over just in time from the theoretical economists and impotent do-gooders who have been mostly preaching– rather than acting– all these many decades.

As Monks put it in a 2011 speech in Paris, “The painfully sad truth is that shareholders, including the great foundations and universities, often have responded– if at all– by appeasement, ineptitude and ignoring the problem.” Monks, who was once chairman of The Boston Company, a public investment firm in Boston, has seen first hand the inability of shareholders to wage guerrilla warfare on the world of staid ownership. “The traditional role of shareholders has been to invest, monitor and fully engage in the optimization of value of the corporations in which they invest. They have not performed these tasks very well.”

Today, you can watch the hedge fund activists at work, pushing and shoving, cajoling managements, boards of directors, and other shareholders into waking up about the need to speak up, act up, go on the assault. Icahn, the bearded veteran of corporate raids and unabashed attacks on under-performing corporate managements, has led the charge of the new breed of ever bold activist hedge fund bosses like Dan Loeb of Third Point, Bill Ackman of Pershing Square and Paul Singer of Elliott Management, just to name a handful.

“The revolution they have mastered is to tee up the shares of companies” Monks told me over breakfast today– and often drive up the price of shares in companies like Sony , Yahoo,Hess, Transocean and Apple. These activist hedge funds are not long-term investors like many of the largest investment institutions in the nation like BlackRock BLK +1.81%($3.8 trillion), State Street(over $2 trillion) and Fidelity Management ($2 trillion), T. Rowe Price ($2 trillion), J.P Morgan ($1.5 trillion). Yet, the hedge funds are becoming the agents of change for these institutions, because they go into the market and take meaningful ownership positions into their holdings as a sign they mean business, cold-blooded business.

This super-activist role is manna for the huge passive index funds that usually don’t liquidate their holdings if the stock is heavily weighted in the index. Where BlackRock tries to influence management by means of private meetings that are out of sight of the public, hedge funds like Loeb’s Third Point, holding 6.1% of SNE, don’t mind pushing hard for Sony to spin off its entertainment division to focus on its money losing electronics division. And look, the stock is up big-time today. After all, Loeb is the young man in his 30s who revamped faltering Yahoo by bringing in the much admired Marissa Mayer as CEO– which led to Yahoo shares being up 50% this year.

Meanwhile, Icahn, with 5.8% of RIG, is busy getting rid of Transocean’s chairman Michael Talbert, and Singer, with 4.5% of HES, a family dominated oil company, is determined to remove heir John Hess from his post as chairman. And Icahn, an owner of Herbalife, and Ackman, a seller of Herbalife HLF +3.77%short, are locked in a personal combat to see who is right about a company that is getting far too much publicity due to brawl between the hedge funders.

“What is at stake,” says Monks, “is the sustainability of the traditional real return on equity investments- 6% plus or minus per annum in excess of inflation. These returns compounded enable the pension promises to be honored. Whether we live in a poor or an adequately financed society depends on the effectiveness of our system of governance. Institutions must take the initiative to protect their relevance as a wealth preserving energy in a free society.” Otherwise the Icahns, the Loebs, the Ackmans, the Singers of the financial system will do it for them.

Source: Forbes