Demystifying Shareholder Activism and Why Some Investors Are Mad at Elon

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Speaker 2 Here's one piece of advice that I've given for years: build an emergency fund. Aim to stash away enough to cover at least three months of expenses in case your income suddenly drops.

Speaker 2 Sounds simple, right? But let's be honest, it's not. Saving even one month's worth of living costs can feel impossible.

Speaker 2 Just when you're making progress, that check engine light blinks on and derails your plans. Life already throws enough curveballs.
You don't need your bank adding to the chaos.

Speaker 2 That's why it's so important to choose one that makes savings easy and doesn't nibble away at your hard-earned money with ridiculous fees. QIIME understands that every dollar counts.

Speaker 2 That's why when you set up direct deposit through QIIME, you get access to fee-free features like free overdraft coverage, getting paid up to two days early with direct deposit, and more.

Speaker 2 With qualifying direct deposits, you're eligible for free overdraft up to $200 on debit card purchases and cash withdrawals. To date, CHIME has spotted members over $30 billion.

Speaker 2 Work on your financial goals through QIIME today. Open an account in just two minutes at chime.com/slash MNN.
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Speaker 2 I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand.

Speaker 4 It's time for some money rehab.

Speaker 1 If you've got a 401k, or if you're investing using my index funds and chill approach, you're probably a shareholder in some of the biggest companies in the world.

Speaker 1 Companies like Berkshire Hathaway or Tesla, or maybe you're even invested into them directly. And that means you have the power over how these companies make decisions.

Speaker 1 Yes, you can vote on what these companies do, who runs them, and how they spend your money. Even if you're a fund investor, there's a growing trend toward pass-through or proxy voting.

Speaker 1 But here's the thing, most of us do not use that power. And while we're sitting it out, someone else is stepping in.

Speaker 1 And they're using shareholder activism not to boost company performance, but to push political agendas.

Speaker 1 Right now, Berkshire Hathaway, Warren Buffett's company, one of the biggest and most stable in the world, is being targeted by what some experts are calling extremist proposals from far-right activist groups.

Speaker 1 If they succeed, it could completely change what corporate America is for. Are companies supposed to make money or take sides in a culture war?

Speaker 1 Today, I'm joined by Neil Minnow, one of the leading voices on corporate governance and someone who's been inside these battles for decades now.

Speaker 1 She'll tell us what shareholder activism should be, what it's becoming, and why your retirement account is more powerful than you think.

Speaker 1 Plus, Nell is a Tesla investor and has been very vocal about her thoughts on Elon. We'll get to that too.
We have a lot to cover, so let's get started.

Speaker 4 Nell Minow, welcome to Money Rehab.

Speaker 5 Thank you. I'm very happy to be here.

Speaker 4 Very happy to have you here during shareholder activism season. I don't know if that's a season, but it feels that way.

Speaker 5 It is a season. Usually it's in the spring.
So we're just starting it. But now is when the companies have their annual meetings.
And more and more of those companies are doing them virtually.

Speaker 5 So you don't have to travel. Just about anybody can attend a shareholder meeting.
And that means you can ask a question and you can hear what other shareholders are saying.

Speaker 4 Yeah, I mean, you don't have to be a big shareholder even to ask a question or to be part of, you know, a company meeting. You can have one share and have a voice, have a vote.

Speaker 5 That is true. I did hear from an executive at Microsoft that people were getting up at the annual meeting and asking IT questions.
That's not appropriate. You want to ask questions

Speaker 5 about

Speaker 5 things that the shareholders should.

Speaker 4 Can you imagine be like, Mr. Gates,

Speaker 4 my Microsoft Word is,

Speaker 5 you know, yeah, right.

Speaker 4 Can you just put this into context historically? Like, what is shareholder activism? And what are the common forms that you have seen and are seeing now?

Speaker 5 Well, of course, one of the great things about a share of stock is that it is about as liquid as it can be. You can sell it anytime you want if you're not happy with what the company is doing.

Speaker 5 But you do have another alternative. You can push them to do better.

Speaker 5 And for example, if you are unhappy that a lot of companies have dropped their DEI policies, have stopped disclosing certain things, you don't have to sell your stock.

Speaker 5 What if you still like the company? You just think that that's a risk for you as an investor. You can write them a letter.
You can go to the annual meeting and vote against the board of directors.

Speaker 5 You can file a shareholder proposal if you have more than $2,000 worth of the stock and have your proposal voted on by all the other shareholders.

Speaker 5 And then, if you really want to up your game, you can join in a lawsuit or even run for the board yourself.

Speaker 4 Wait, $2,000 or 2,000 shares?

Speaker 5 $2,000.

Speaker 4 Oh, for any company? Yeah.

Speaker 4 So, how does that work? If you're pissed about something like legit, not, you know, an IT type of issue,

Speaker 4 you mentioned a DEI policy or a climate policy. You know, these are some of the buzzy things right now or pay packages and we'll get into Tesla, of course.

Speaker 4 What do you do if you're pissed about something and you own 2,000 bucks?

Speaker 5 Well, you have to do a few months ahead of time. Their last proxy will tell you what the deadline is for filing a new.

Speaker 5 shareholder proposal and there are a lot of restrictions and when trump is in office there are more restrictions so he put some in biden took them out trump has now put them back and so your subject matter is limited it's not just not asking i.t questions it has to be obviously something that the company can't address it has to be not personal to you it has to be a general subject and there are other kinds of restrictions you also only have 500 words whereas the company has all the words that they want to respond to you but if you follow those rules and your best bet particularly if you're new at this is to find a proposal that's already passed muster and just submit that, even if it's not your number one priority, as to get your foot in the door, because then they'll call you and you can talk to the company about what some of your issues are.

Speaker 5 It's a good way to get their attention because they would love to negotiate with you. They would rather not have everybody vote on it.

Speaker 4 So to summarize. Basically, shareholder activism is a fancy way of describing influencing a company you're invested in.
And maybe somebody saw like the Carl Icahn documentary that was out there.

Speaker 4 He's one of the famous activist investors.

Speaker 5 That's right. They used to call them raiders in the 80s when Carl Icahn first got started because they don't always do things that are beneficial to all shareholders.

Speaker 5 They very often take a piece of the cake and they don't leave anything for anybody else. But many shareholder activists do act on behalf of all the shareholders.

Speaker 5 And it's good to sort of get acquainted with them and know what's happening. Now, the big household name companies get a lot of shareholder proposals.
I think Amazon hit something like 11 this year.

Speaker 5 Most companies don't get any, but that doesn't mean that you can't still go to the annual meeting virtually and ask a question.

Speaker 4 Or vote.

Speaker 5 Yeah, I always say that

Speaker 5 directors. Sure.
And you better vote. You should vote.
I always say boards of directors are like subatomic particles. They behave differently when they're observed.

Speaker 5 So the more they know that you're paying attention, the more they will pay attention to you.

Speaker 5 And, you know, You have to remember that even if you don't own individual shares of stock, even if you're not a stock picker, even if you have a 401k, what I recommend to people,

Speaker 5 generally that is invested in an index fund or a mutual fund, which is great. That's what I recommend that people do if they don't want to devote a lot of time and attention to picking stocks.

Speaker 5 But what that means is that if you're with Fidelity or you're with Vanguard or you're with a fund like CalPERS, get in touch with them. Ask them how do they vote their proxies?

Speaker 5 Are they voting against these ridiculous pay plans? You can find that out very easily. And again, the more people ask that question, the better they will be.

Speaker 5 The more that they think that you care about it, the better they will be.

Speaker 4 Well, so you mentioned pay plans, and I'm assuming you're alluding to Elon's pay package as one of the things that has been up in the news lately.

Speaker 4 That's maybe how some people think about shareholder activism, because, you know, if anyone listening has Tesla shares, they might remember last year we had the opportunity to vote on Elon's pay package.

Speaker 4 So shareholder voting is, of course, one way that you can play a role in a direction of a company.

Speaker 4 I would love to double click, maybe triple click on Tesla for a second, but I want to really caution that shareholder activism sounds like a euphemism. Like who doesn't want to be an activist, right?

Speaker 4 But like the finance world is so full of this type of stuff. Like overdraft protection is not always protection, for instance, right?

Speaker 4 So it sounds like a good thing or a great thing, but it isn't always. You mentioned, you know, the icons of the world being called raiders.

Speaker 4 Like a hostile takeover is a form of shareholder activism too. And Berkshire is right now being targeted by three extremist right-wing shareholder proposals.
Can you explain what's going on here?

Speaker 4 Because I think everybody just loves talking about Warren.

Speaker 5 I love talking about him. I love him.
And I'm very happy to be a Berkshire shareholder. So yes, I just voted against those proposals.

Speaker 5 And what's so insidious about it is that the extreme right-wing proponents who are all financed by the, they're all sock puppets for the same, the Scave Foundation, the Mellon Foundation, the Koch brothers, the very, very extreme right-wing people who are very involved in a lot political stuff.

Speaker 5 If you look at them very quickly, And most people don't want to spend a lot of time voting on proxies, they almost look good. They'll say, you know, proposal on diversity.
Well, great.

Speaker 5 We like diversity, but it turns out that it's diversity, in their view, it's diversity, it's prejudice against white males if you are paying attention to anybody else if you're just trying to make your employees feel comfortable and they say a lot of things that aren't true they imply that dei programs are about quotas which they are not they're just about expanding the applicant pool and and so yeah you do have to be very careful about it it used to be the shareholder proposals were generally pretty good but i'm happy to say that shareholders have been doing a great job on this and a proposal like that at disney got less than one percent of the vote and if you don't get i think it's five percent of the vote you can't even resubmit it next year so people are being very savvy about those extremist proposals so basically those three shareholder proposals are to take over the company they are directing the company you first of all the most important thing to know about shareholder proposals is even if you get a hundred percent of the vote the company can still walk away from it.

Speaker 5 They don't have to do anything. They're only advisory, or to use the legal term, precatory.
They only say, please think about doing this. That's all they do.

Speaker 5 And so that's one reason it makes me furious when corporate executives talk about activism in bad terms and say, oh, these people are trying to run the company. They're not trying to run the company.

Speaker 5 They can't. There's no impact on these proposals.
But what they're saying is, please prepare a report. Very often, shareholder proposals will ask for a report.

Speaker 5 Prepare a report on how you're being prejudiced against white Christian people. something like that.

Speaker 4 So they really don't have as much

Speaker 4 bite as they have mark, but you know, like the icons of the world could be. And they buy a bunch more.

Speaker 5 It's a foot in the door because they don't like to have the proposals on the proxy and they will call you, or most of them will call you and say, what can we do? to get you to withdraw your proposal.

Speaker 5 At least you can start the conversation that way.

Speaker 5 So we used to do proposals on things like that, actually, companies really improved on, you know, that you shouldn't serve on more than four or five boards.

Speaker 5 A lot of times there were people serving on 10 boards. You just don't have time in your life to do a good job on 10 boards, on conflicts of interest of directors, things like that.

Speaker 5 And companies have made tremendous improvement. Boards of directors are vastly better now than they were when I first got started in this field.

Speaker 5 Believe it or not, when I first got started in the 80s, O.J. Simpson was on five boards and he was on an audit committee.

Speaker 4 I had no idea. Seriously? Which boards? Do you remember?

Speaker 5 Yeah, Infinity Broadcasting. And he, and there was a two-person audit committee.
The other person didn't know anything more about accounting than O.J. He just wasn't famous.

Speaker 5 He didn't have a Heisman trophy. But yeah, so there were a lot of people on boards who had no business being on them and did, you know, contributed nothing.

Speaker 5 So boards of directors are generally doing a much better job than they did. And that's because of shareholder activism, because shareholders asked for

Speaker 5 better performance from the board of directors, whose job is really to protect our interests.

Speaker 5 And there have also been a number of times recently where shareholders have rejected some of the activists.

Speaker 5 The guy that went against Disney, the shareholders said, no, we're not interested when he ran his own candidates for the board.

Speaker 5 So I think shareholders are also, when I, the shareholders I work with are the large institutional shareholders, the pension funds, the index funds, the mutual funds.

Speaker 5 and they've gotten a lot more sophisticated about voting proxies too.

Speaker 4 And what's the percentage of the time that they actually listen?

Speaker 5 They listen all the time. They don't always do.

Speaker 5 In the most outrageous cases, there have been companies where fewer than 50% voted for director candidates and they put them on anyway, which I think is just an outrage, or where the shareholders voted no on the pay package and they went ahead with it anyway.

Speaker 5 But generally speaking, I would say that they do take it seriously when shareholders are unhappy.

Speaker 5 I will tell you, I had a conversation once with a director who was explaining to me that the shareholders voted in favor of a particular shareholder proposal, and this company was really underperforming.

Speaker 5 And he said to the shareholders, he says, You don't understand, those are fringe shareholders. And I said, They got 60% of the vote.
You're the fringe.

Speaker 4 Oh,

Speaker 4 okay, now

Speaker 4 you tell them who has more power, in your opinion, the shareholders of the board.

Speaker 5 No question, it's the board. They're the ones that are there, and they're the ones that do have the legal power and responsibility.

Speaker 5 But remember that directors, although Delaware is trying to weaken the obligations of directors, but generally speaking, directors have two duties.

Speaker 4 They have a duty of care, meaning they have to come to meetings, they have to pay attention, they have to do their homework, and a duty of loyalty, meaning that they have to remember that their priority is the shareholders not management and if they don't do those two things they get sued i'm sure that's happened it's never fun to get sued even if you have all the money in the world to defend yourself it's never fun depositions are brutal hard pass yeah so there's a lot of pressure that you can put on a company but they don't have to do anything you say even if you own more than two thousand dollars if you own hundreds of millions of dollars or billions of dollars of a stock.

Speaker 4 Absolutely.

Speaker 5 They will ignore you.

Speaker 5 A lot of large investors in Tesla have raised their hands and said, Hey, we need you to do a better job, Elon Musk, than putting your brother the chef on the board. I mean, come on.

Speaker 4 All right, let's go.

Speaker 4 Should we put a pin in Warren and Berkshire and just go over to Elon now? Well, for sure. There's

Speaker 4 something to talk about. So much with Tesla.

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Speaker 4 You are a Tesla shareholder. You have been for a long time, but you have feelings about the company, the board in particular.
So the brother is some of your beef.

Speaker 4 The brother being on the board, what else? Why did you originally invest? And, you know, the stock is down tremendously this month, this year, since Elon went into Doge.

Speaker 4 How does all of this make you feel?

Speaker 5 This is going to sound almost quaint at this point. I invested originally quite a long time ago because I was excited by the idea of electric cars.

Speaker 4 And that's it.

Speaker 5 And so I invested and did quite well.

Speaker 5 And then last year, just this time last year, right after proxy season, I voted no on the pay plan. So I held the stock long enough to do that.
And then I donated almost all of my stock to charity.

Speaker 5 It had tremendous capital gain. I didn't really want to have to pay taxes on it.
I didn't want to hold it anymore. This is the part that's going to sound quaint.

Speaker 5 Why did I decide to get rid of the stock? Because Elon was involved in too many other things. I didn't think he was doing a good job as the CEO.
As you know, he's got a lot of side hustles.

Speaker 5 He's got the rocket ship. He's got the brain thing.
He's got all of that stuff he was working on. I didn't think he was going to be able to devote the time and attention to Tesla that was needed.

Speaker 5 And I was outraged that he wanted to pay himself $56 billion

Speaker 5 just to do his job.

Speaker 4 Well, so now he has another side gig.

Speaker 5 Well, I know that's why it sounds kind of quaint that I was worried about, you know, the rocket ship, but here he is devoting.

Speaker 4 It's not- Oh, yeah, just the rocket ship, right?

Speaker 4 Like SpaceX,

Speaker 4 knurling. Yeah.

Speaker 5 Yeah. Knurling, all of that, all of those other things that he was doing, and artificial intelligence, everything.
And he just seemed very unstable to me, as he still does.

Speaker 5 And so, okay, now he's got a side gig that is definitely a full-time job, and he brags about how much time he's spending on it. And

Speaker 5 the company, the board of directors, has completely failed. Normally, you would have to file an AK and say, our new acting CEO is so-and-so.
They won't even tell us who's running the store there.

Speaker 4 But like, what can you really compel? What can shareholders compel Elon to do?

Speaker 5 Nothing because he owns such a significant block of the stock and he controls the board. The

Speaker 5 chair of the board testified under oath, as I think we would agree was correct, that the $600 million she's been paid for being on that board has been a life-changing event.

Speaker 5 I think we would agree that that's always going to be a life-changing event to get paid that much.

Speaker 5 But, you know, Upton Sinclair said it's it's impossible to make a man understand something if he's making a lot of money not understanding it. And that's the case with that board.

Speaker 5 They're absolutely useless. And that was why I didn't have any confidence in the company anymore.

Speaker 4 So basically, you're quoting Mr. Sinclair and saying that she, Robin Denholm, the chair of Tesla's board, $682 million in cash and stock is her pay package.
She's paid way too much.

Speaker 4 Elon owns 13% of Tesla, which is a big portion, you know, at that point in the game. So you definitely think she, you're basically saying she has conflict of interest.
She's paid way too much.

Speaker 4 So who has? Yeah. Yeah.

Speaker 5 I'm saying that about the whole board. They're serial killers of shareholder value.
And

Speaker 5 the problem is, on top of everything else that we've talked about, is that Elon Musk took the high-risk, high-reward decision that he was going to make himself the brand.

Speaker 5 And, you know,

Speaker 5 we've seen CEOs do that before. Steve Jobs did that very effectively at Apple with his iconic black turtleneck, and everybody just believed in him as being such a whiz kid.

Speaker 5 And Walt Disney, you know, still the brand of Disney. But

Speaker 5 you have the upside, the downside of that is when somebody like Mike Lindell decides to get very involved in politics and now is saying publicly that his only remaining assets are his car and his house.

Speaker 5 People, you know, markets are wonderful. Markets are efficient.
And the market responded to his behavior, Mike Lindell's behavior in a very powerful way.

Speaker 5 And I feel that that's also happening with Tesla. I mean, I am, I know everybody has seen these, but I just...

Speaker 5 this week was driving behind a Tesla that had a bumper sticker that said, I bought this before Elam went crazy.

Speaker 4 Oh, yeah. There's a ton of those.
I took a picture of it. Yeah.
So Mike Lindell, just for our listeners, that's the MyPillow guy.

Speaker 5 But yeah, Mike Lindell was doing great with MyPillow. And now Fox won't let him advertise anymore because he hasn't paid his bills.

Speaker 5 So it's because he decided that he was going to go all in for Donald Trump and for challenging the election results in 2020. And consumers didn't like that.

Speaker 4 Okay, but what, I'm assuming you voted against Elon's pay package or did you sell your stock?

Speaker 5 No, I kept it specifically kept it long enough to vote against it.

Speaker 4 I'm assuming gladly against. Yeah, and I

Speaker 4 gave a lot of interviews.

Speaker 5 Yeah, I gave a lot of interviews saying that he should, that it was an outrage.

Speaker 5 No human being is worth that. And he's already made all the money in the world the way he should have from his

Speaker 5 investment. And if, you know, very often the board will say, this is retention.
This is all about retention.

Speaker 4 Well,

Speaker 5 maybe we don't want to retain him. And he should be sufficiently motivated by the investment he already has in the company.

Speaker 5 He should not be siphoning off the shareholder money to pay himself even more just because he took a beating on Twitter.

Speaker 4 But what would you say to the devil's advocate?

Speaker 4 point of view that he earned that pay package because he hit all these milestones that he priorly that he outlined prior and that once he hit those milestones, then shareholders would obviously get more.

Speaker 4 So if I said to you, hey, Nell, I'm going to, you know, I'm going to create a million dollars of value for this one episode. And if I do that, then I'm going to give you a percentage of it.

Speaker 4 But if I don't do that, then like we, we, we get nothing. Right.

Speaker 5 And that is the way pay should be structured. Yes, Nicole, I agree to that pay plan for you.
But he was getting paid for what he hadn't done. He got paid plenty for achieving those goals.

Speaker 5 He's the richest man in the world. He got paid plenty, but there's diminishing marginal utility of that additional dollar.
And

Speaker 5 he was, as I said, he wasn't there. He was off doing other things.
He was tweeting all day long. And so, no, you don't pay him that.
He's already should be already.

Speaker 5 incentivized by the amount of stock he has. If he creates value for shareholders, then he will create it for himself.
But this is it.

Speaker 4 He created these big pie in the sky, you know, milestones, right? And he's like, just in the off chance that, like, I hit this number,

Speaker 4 and then we'll all get paid.

Speaker 4 Nobody thought he would, and then he did.

Speaker 5 Yeah, and he got paid, he got paid more than enough for that. This is how you have to look at it.

Speaker 5 Every single dollar that goes to a CEO should be looked at in the same way as any other expenditure made by the board of directors. And that's one metric, return on investment.

Speaker 5 And the return on on investment for these outrageous pay plans that these ceos is are getting is less than a piggy bank you know we look for the return on investment from the money that they spend on r d for the money they spend on marketing for the money they spend on their employees you have to look at it in a very green eye shade sharpen your pencil way but the problem is we're paying ceos you know, outrageous amounts.

Speaker 5 The market was tremendously strong during the 50s and 60s when the CEO pay package was something like 13 times the average employee.

Speaker 5 Now it's hundreds of times, even thousands of times the average employee. And by the way, that's one of the other achievements that shareholders

Speaker 5 can mark up to activism. Now it's in the law that the companies have to tell you on the proxy what the ratio is between the CEO pay and the average employee.

Speaker 5 And that's a really good metric to look at.

Speaker 4 So what do you think Elon shouldn't have gotten paid?

Speaker 5 You know, I think something in the tens of millions, maybe 100 million for achieving a great goal. But it's also very important that you have a downside as well as an upside to CEO pay.

Speaker 5 And very often that doesn't happen. I talked to a compensation committee chair once who said, well, you know, he didn't meet the milestones and

Speaker 5 he made some very hard decisions. So we had to give him the bonus anyway.

Speaker 5 And I said, okay, if he made hard decisions that are going to pay off in the long run, then we pay him in the long run we i know you're going to pay him then so don't pay him for that now so you know elon musk did not no one deserves no one deserves a pay package of 58 billion dollars if you are bill gates or elon musk and you create something that makes a lot of money or mark zuckerberg and you create something that makes a lot of money and you make money that way that's fine but we're talking about his pay his salary and he did not deserve that well i mean 13

Speaker 4 of tesla and by the way he's not the founder of tesla people think he is no he's not yeah just just as a reminder i know you know this i know that he's not the founder but he did bring the company forward he totally did and and 13

Speaker 4 an appreciation in that 13 of the company would be many many billions of dollars anyway which is i think what you're saying that he doesn't need like a comp structure if he's incentivized as an equity holder he calls himself the product architect right of tesla and the ceo he was the founder i should mention of that little space company of of space xpx right yeah good for them they've got the astronauts home but yeah he he should so tell us how you really feel now

Speaker 5 it well i'm very fortunate to have a job where i get to express very strong feelings all the time

Speaker 4 I love that. I love that, Brussels.
Okay. So let's talk about where Tesla might be going.
You're not a shareholder anymore. You're not,

Speaker 5 I kept 20 shares. Just 20.
Just 20, because I wanted to continue to get the shareholder communications. And

Speaker 5 I can promise you there's going to be a shareholder lawsuit over what's happening now at the company. And I will be happy to be part of that lawsuit.

Speaker 4 Okay. So they had the current price per share.

Speaker 4 You're at a few thousand bucks.

Speaker 5 Yeah.

Speaker 4 Okay.

Speaker 4 So where do you think the company is going? Kathy Wood, for those who don't realize who Kathy Wood is, major investor. She's so confident in Tesla right now.

Speaker 4 We did stories about her saying that it's going to hit $2,000 a share. Do you think that's in the realm of possibility?

Speaker 5 I think it's a long shot. And I would think that they would have to make some very

Speaker 5 major changes to the management. They'd have to bring in a really good person who will actually be in the office and be running things there.
Then I think it could.

Speaker 5 But it's interesting, he's the company is kind of sailing into some headwinds right now because the administration is doing a lot to promote oil and gas guzzling cars rather than electric cars.

Speaker 5 So I'm not sure. If it does, maybe someday, maybe it'll hit that.
And I hope it does, but I don't think it will do it with Elon Musk in his current situation.

Speaker 4 Can companies block shareholder activists from buying shares?

Speaker 5 From buying shares? No.

Speaker 5 Just like the grocery store can't block you from buying bananas. Nope.

Speaker 4 We had heard that, you know, there could be people at companies that are monitoring activists buying. Could they be monitoring it, filing any

Speaker 4 complaints with the SEC or otherwise to try and scoot them out?

Speaker 5 Well, there are very, very strict rules at the SEC that if, say, I wanted to be an activist, and I have been an activist in the past, if I bought a certain amount of stock with the intention of affecting the company in any way,

Speaker 5 it's a very low bar to reach. I would have to file a public statement with the SEC saying exactly what I intended to do.
And so they don't need to scope anything out. It's already out there.

Speaker 4 And a company can't force a shareholder to sell. their shares.

Speaker 5 Well, I'm glad you asked that because something, one of the reasons that shareholder activism all of a sudden sudden happened in the 1980s is that companies were paying what was called green mail to activists to get them to go away.

Speaker 5 They paid, General Motors paid Ross Perot a ton of money to stop bugging them. And that's not good for shareholders.

Speaker 5 And that's why all of a sudden, shareholders who had been very passive up until that point and had pretty much adopted what was called the Wall Street rule, vote with management or sell the shares, said, wait a minute,

Speaker 5 all of a sudden, both raiders and entrenched insiders are abusing our rights. We better wake up and do something about it.

Speaker 5 And that's why the Council of Institutional Investors, which is the trade association, celebrated their 40th anniversary last week.

Speaker 5 That's exactly what started it, was the payment to Ross Perot of Greenmail.

Speaker 4 And you're saying that that money obviously should be used for more important things at the company.

Speaker 5 Yeah, Ross Perot was raising some very legitimate questions with General Motors, which was a terrible investment at the time.

Speaker 5 And the company said, we'd rather pay you to go away so we can continue on exactly the path that we're on. And, you know, they were getting their butts kicked by Japan and by their competition.

Speaker 5 So in the United States. So, so, yeah.

Speaker 4 But he didn't take it. He didn't need it.

Speaker 5 Who, Ross Borough?

Speaker 4 Yeah. Of course he did.

Speaker 4 Oh, go. Yeah.

Speaker 5 How do you think he got so rich?

Speaker 4 Oh,

Speaker 4 I didn't know that part of the story. This was the beginning of like the where he found his fortune.

Speaker 5 He was already rich, but he got much, much richer. And there are other raiders who are doing the same thing.

Speaker 4 Like, how much are we talking about here? Many,

Speaker 5 many, many millions of dollars. And

Speaker 5 shareholders were just outraged by this. You know, it's fascinating to me because I went to the University of Chicago.
I'm a free market person.

Speaker 5 I always say I represent the people capitalism is named after, the people who provide the capital. I love capitalism.
I've I've started four companies myself. So I love capitalism.

Speaker 5 But the people who rhapsodize about the purity of the free market just get weak in the knees when the free market doesn't like what they're doing.

Speaker 5 And they either want to shut up their critics, they want to make it impossible for them to raise these questions or to go public with them. And I don't understand that at all.

Speaker 5 It seems to me, and I can say, as a person who has started businesses,

Speaker 5 as difficult as it is, the people who complain to you, the customers who complain to you, are your best friends because they tell you how to do better.

Speaker 4 Yeah. I mean, capitalism is all fun and games when you're the one that's winning.
We saw this with Gamestop, which is a different story.

Speaker 5 Well, it's a different story. But, you know, I'm the co-author of a textbook, an MBA textbook about corporate governance.

Speaker 5 And my favorite page in the textbook, I didn't write, which is a chart of all of the top 20 companies by market cap by decade. So it goes like the 1950s, 60s, 70s, 80s.

Speaker 5 These are the top 20 companies in America by market cap. Now, it's not going to surprise you that for a long time, we're seeing the same names, the same names, the same names.

Speaker 5 Then all of a sudden, names like Kodak fall off the list. They barely exist anymore.
And companies that weren't even dreamt of, even their founders weren't alive when the chart started.

Speaker 5 All of a sudden, Facebook, Amazon, and Apple. are at the top of the list.

Speaker 5 You know, it would be nice to say that they will stay there, but the problem is that even the best and most vibrant and robust companies tend to get a little sclerotic instead in their ways.

Speaker 5 And then somebody comes and steals their lunch.

Speaker 4 Sclerotic is such a good scrapple word.

Speaker 4 It's such a good one. Can you just help us step back for a second, Nell, and can textualize like why we should care about the fights at Berkshire and Tesla in particular?

Speaker 4 These are the ones that are in the news right now. You might own a little little bit of Berkshire.
I mean, I own a little bit of both, a very, very tiny amount.

Speaker 4 Obviously, Berkshire B shares, not A shares, but why? Like, why should we care about the shenanigans going on in the boardroom?

Speaker 5 Well, what did I just say? I just said the companies that were at the top of the list don't even exist anymore. And it's because there was no pushback from the market.
There was no pushback from.

Speaker 5 you know, why should I, why should I maintain the outside of my house? Because if I don't, it's going to deteriorate. It's going to be worthless.

Speaker 5 And, you know, there may be some times when a company's doing something you don't like and you want to sell out. I was lucky that I got rid of my Tesla shares near the top.
But

Speaker 5 very often, you know, as somebody once said, the best way to make money is to put all your eggs in one basket and then watch the basket. You can't just set it and forget it.

Speaker 5 If you are going to be a shareholder, you're responsible for what that company does.

Speaker 4 And if you don't watch them, they will be happy to put their hands on the cookie jar and take your money but also even if you're just an index fund and chill type of investor you should still care which which brings me to how we end all of our episodes now by asking our guests for a tip listeners can take straight to the bank can you share any advice that you would have whether you're invested in a company or if you are a shareholder via an index fund that we should do if we don't agree with business or ethical decisions made by a company.

Speaker 5 Listen, the one thing I want everybody to do is to write your broker, your index fund manager, whoever it is that you're dealing with, and ask them how they vote their proxies.

Speaker 5 Ask them to send you a copy of their proxy policies. But I'll give you one more piece of advice, which is this.
I used to have a company, which I've sold, but so it's still going strong.

Speaker 5 But I used to have a company that evaluated boards of directors like bonds, triple-A to junk.

Speaker 5 And we had a very complicated, very sophisticated algorithm for doing that. And it was quantitative and qualitative and blah, blah, blah.

Speaker 5 But I will tell you, you will get 95% of the way there if you short all of the companies that are the ones that most overpay their executives. That is a short sell.

Speaker 4 Oh, that's interesting. How do you figure that out?

Speaker 5 Well, generally speaking, Business Week and the Wall Street Journal and other places will say most overpaid executives every year

Speaker 5 when the annual meetings happen. And so you'll have a list and it's not hard to find that.

Speaker 4 That can be a cool new endeavor potentially for you now. Like an AETF that shorts the highest executive comp.
There's something too that does like the shorting of Jim Kramer's picks.

Speaker 5 Well, I'm also going to send you some information about a place that will either vote your proxies for free and they do a great job or give you advice about how to vote them if there's a complicated issue.

Speaker 4 You know, you're reminding me that I never pay attention to those and I should.

Speaker 5 Yes, you should.

Speaker 4 Do I suck?

Speaker 5 No, not at all.

Speaker 4 I'm just not a great corporate citizen.

Speaker 5 You throw out all those blue shrink-wrap packages.

Speaker 4 I know. Or no, I mean, I don't actually like

Speaker 4 more realistically, just the emails.

Speaker 5 Well, I mean, you could have had a chance to back up your buddy Warren by voting against those terrible proposals.

Speaker 4 If he only was my buddy, your buddies in my mind.

Speaker 5 I'm going to send you my picture of me with Warren.

Speaker 4 Oh, please do. We'll make that the cover art of this.

Speaker 5 Somebody was going to take a picture of us together. He said, I'm going to pretend I'm whispering a stock tip in your ear.
And so you'll see what he said. Oh, look like I'm giving you a stock tip.

Speaker 5 So you'll see what I do.

Speaker 4 Okay, Warren. I love that.
Look at Warren.

Speaker 2 Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin.
Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes.
Do you need some money rehab?

Speaker 2 And let's be honest, we all do.

Speaker 2 So email us your money questions, moneyrehab at moneynewsnetwork.com, to potentially have your questions answered on the show or even have a one-on-one intervention with me.

Speaker 2 And follow us on Instagram at MoneyNews and TikTok at Money News Network for exclusive video content. And lastly, thank you.
No, seriously, thank you.

Speaker 2 Thank you for listening and for investing in yourself, which is the most important investment you can make.