They got a “foothold” because they are owners, who own more stock than all of management and the board put together. The amazing part is it took 20 years for an activist to get a seat.
“During Immelt’s tenure, GE’s stock market value fell by about half. Its stock is trading where it was 20 years ago.“
This is a testament to the amazing power of entrenched management.
The author is just butthurt because a CEO who helped espouse his personal lean management mantra got canned as incompetent. His complaint that the activists will gut innovation at GE is ludicrous, given GE hasn’t successfully innovated in over twenty years.
Activist investors are investors. Gutting a good business for parts to make a short term profit at the expense of long term value isn’t good investing. But recognizing the stage a business is in, and managements ability to fix it is important into fdetermining the best possible future for it.
Warren Buffett once let himself get talked into letting management of one of his investments to invest cash flow back into its tough business and ended up regretting it greatly. Since he finally made the decision to shut down Berkshire Hathaway’s textile business and strip its remaining assets and cash flow to invest in far better companies, BRK.A stock price has increased a bit, from around $10/share to $200,000/share.
> Activist investors are investors. Gutting a good business for parts to make a short term profit at the expense of long term value isn’t good investing.
Yes, tautologically activist investors are investors and indeed, a system that prevented the business owners from managing the business would be a bad idea, regardless of what you think of their decisions.
But, though short-termism is typically bad for the company it has been good for some entities, like Carl Icahn, Bain Capital et al. I wouldn't call it good for the economy. Buffet is a buy and hold.
Whether Imelt was investing in the future or squandering it is a judgement call. The markets certainly showed their judgement
>But, though short-termism is typically bad for the company it has been good for some entities, like Carl Icahn, Bain Capital et al. I wouldn't call it good for the economy. Buffet is a buy and hold.
Buffett is buy and hold as long as he retains confidence in the management team. He's certainly not afraid to sell.
Entrenched, complacent management is as much a danger to a company's value as "asset strippers". Surely the fact that the company's valuation has dropped so precipitously is a good reason to fire any CEO, particularly when the rest of the market is up so much over the same period.
Buffett's got a famous bit of advice that you want to own businesses any fool can run, because sooner or later a fool will be running it. But that aside, he's certainly not going to ride an investment down if the CEO is damaging value and Buffett is unable to remove them.
Stripping Berkshire Hathawsy turned out great for the economy. The textile mills were closed, and turned into cheap office space that helped drive the Boston tech boom. The remaining cash flow saved from been diverted onto that gaping wound of a business and remained jg assets were invested in far better businesses.
Ever business doesn’t deserve investment, some require liquidation. The world needs Carl Icahns too, people who identify when it’s better to end the business and dismember it rather than keep burning money in it.
Someone shut down buggy whip factories so they could make car parts. Their investors and employees should have been grateful.
