The Birth of Shareholder Activism
Dear Chairman

The Birth of Shareholder Activism

Jeff Gramm, a hedge fund manager and adjunct professor at Columbia Business School, lays bare a century’s worth of intimate investor-boardroom battles.

Jeff Gramm, a hedge fund manager and adjunct professor at Columbia Business School, offers compelling history lessons about landmark events in the evolution of shareholders’ rights. He presents ferocious boardroom battles in the form of letters written that aggrieved investors have written to C-suite executives. Gramm uses this innovative technique to reveal how activists brought about desired changes – and in some cases, grievous unintended consequences.

The Wall Street Journal said, “It’s an illuminating read for those wondering what drives activists…with lucid observations on investors and corporations.” The New Yorker wrote, “An engaging and informative book…[of] investor’s letters that sum up some of the great agency-problem battles in the history of American business.”

Benjamin Graham

Gramm opens with professional investor Benjamin Graham, the late venerable investment pioneer, who learned in 1926 that the Northern Pipeline Company pocketed millions from security investments that it didn’t share with stockholders.

The company’s pile of cash and securities was arguably worth more than the entire operating business. Jeff Gramm

Graham, father of the hedge fund, proposed that Northern pay a restorative premium to shareholders. Management rebuffed him, and Gramm gleefully recounts how Graham bought enough shares to win two of five board seats. Gramm presents this as an unprecedented victory for shareholders over the Wall Street status quo.


Gramm details how raiders in the 1950s – proxyteers – targeted corporate under-performers such as Twentieth Century Fox and Montgomery Ward. Gramm reports that in 1954, proxyteer Robert Young took on the New York Central Railroad; both sides spent some $2 million seeking proxy votes. Young won the battle, and the railroad doubled in value before a 1957 industry crash. Young, Gramm laments, later shot himself, leaving behind a huge fortune.

Warren Buffett

Gramm reveals a 1960 scam at an American Express warehouse subsidiary, the Allied Crude Vegetable Oil Refining Corporation. Discovery of the scam bankrupted Allied and dropped American Express’s value by 50%.

Why was shareholder activism so rare in the early 20th century?…Ownership at public companies was concentrated into very few hands – usually founders, family members or entrepreneurial financiers. Jeff Gramm

Warren Buffett invested heavily in American Express, and Gramm offers Buffett’s 1964 letter praising CEO Howard Clark and saying the company would emerge from the scandal even stronger. The experience changed Buffett’s investment strategy, Gramm asserts. From then on, Buffett bought companies, not stock.

Carl Icahn

Gramm characterizes the 1980s as the deal decade, citing 22,000 mergers and acquisitions. He sketches Carl Icahn’s threat to take over Phillips Petroleum, a drive that Icahn backed with $1.5 billion in cash raised by junk bond prodigy Michael Milken. Gramm points out that Milken’s junk bond market produced vast liquidity, but Milken ended up in jail. Icahn, however, grew enormously wealthy.

Ross Perot

Gramm celebrates salesman extraordinaire Ross Perot, who became GM’s largest shareholder and, thus, a GM board member. Gramm details Perot’s critical five-page letter to GM’s CEO. In response, GM offered to buy Perot out for $700 million. Pension funds that had invested in GM stock, Gramm recounts, couldn’t believe GM would waste $700 million on a board fight. In Gramm’s analysis, Perot’s golden parachute shifted the mind-set of institutional shareholders.

Karla Scherer

Gramm unveils the incredible saga of Karla Scherer, who joined the board of R.P. Scherer – which her father founded. Gramm explains that Scherer disliked the decision of management – led by her husband, the CEO – to invest the company’s profits in outside ventures. Scherer was the board’s largest shareholder, but, Gramm found, no one listened to her.

The largest shareholder of R.P. Scherer is stonewalled by an entrenched CEO and a captive board of directors. She happens to be the CEO’s wife and the daughter of the company’s founder.Jeff Gramm

Presenting a riveting saga, Gramm discloses how Scherer divorced her husband, gained board allies and sold the company for $480 million. This tale seems to engage Gramm most fully, and he builds suspense – and portrays dysfunctional family dynamics – with great skill.

BKF Capital

In 2003, BKF Capital Group managed assets worth $13 billion, yet, Gramm found, Wall Street valued it at less than $150 million. Earnings, he explains, went to employees, not shareholders. In April 2004, Steel Partners, veterans of activist battles, sought to force BKF to restructure its board and embarked on a proxy fight. Its stockholders’ victory, Gramm uncovers, spurred board defections and the stock fell 90%. By fall 2006, BKF had neither a functioning business nor assets.

Disinterested, Fascinating History

A book of letters to boards of directors would be of little use to anyone, even business students, without Gramm’s knowledgeable, engaging, detailed contextualization of each dispute in its era and its particulars. Gramm takes a long view, and offers each fight as representing a step forward – and incarnating a new era – for shareholder rights. He’s not much interested in identifying heroes or villains; Gramm is a historian – with no axe to grind – who’s fascinated by market movement and the never-predictable human aspects of battles and deals involving almost unimaginable sums. Gramm’s attempts to cast each battle as an archetype may engage business students, professors, professional investors and market historians – but laypeople will revel in the greed, subterfuge, determination and sheer willpower of the combatants.

Other entertaining, informative chronicles of boardroom battles include Barbarians in the Boardroom by Owen Walker, Dead Companies Walking by Scott Fearon and Boards That Lead by Ram Charan.

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